You can’t control the market, but you can control how you care for your greatest investment. But deciding how to pay for large scale home improvements? Can sometimes be more difficult than knowing what contractor, material, or project to choose.
If you read our first installation in the series, you know how important a strong roof and exterior is to your home’s value. A healthy exterior protects your home inside and out. These projects also offer high return on investment (ROI)- a great renovation choice for homeowners interested in increasing their home’s value.
But when it comes to these big repairs and renovations, how do most homeowners pay for them?
Many homeowners plan on insurance covering the big repairs. Others plan to take the expense out of their home’s equity.
But there are several external factors to consider when finding the best way to make a large renovation purchase for your home.
Today, we take a look at these factors and offer a few options to consider.
First, let’s take a look at homeowners insurance.
Insurance Will Cover it, Right?
It’s been storming all night, the wind howling outside your windows. Leaves and debris fly across the sky. You wonder if you should make your way to the basement. After a full night of non-stop rain- you walk outside to see the aftermath.
Shingles are scattered on your lawn and you know your roof is in trouble.
It’s a disaster…but insurance will cover it, right?
Although this scenario is made up, thousands of homeowners find themself in similar situations every year. In 2020, 6% of all US homes filed an insurance claim. Roofing and exterior damage makes up a large percent of these claims.
But homeowners insurance isn’t a catch all and doesn’t always cover you as you’d expect.
Imagine the scenario above but with a roof over 20 years old.
You’re going to be disappointed with the insurance payout.
The age of your roof limits your coverage. Need a complete replacement? Insurance will only cover the actual cash value of your roof… not the entire replacement.
Other factors that can affect your insurance coverage include:
- Improper installation methods, like layered shingles
- Roofs showing pre-existing signs of decay
- Issues classified as “cosmetic” (missing shingles)
If your roof qualifies for full insurance coverage? Don’t overlook your policy deductible. The average deductible cost falls between $500-$1,000. Yes, this is nothing compared to the full cost of a new roof. But do you have $1,000 readily available for a deductible payout?
Don’t get us wrong- you should absolutely have home insurance. Just aware that, depending on the age of your exterior and your specific policy, you may not be as fully covered as you think.
So let’s talk about what you can do to give your roof the maximum qualifications for insurance coverage:
Maintenance- And Inspections- Are A Homeowner’s Best Friend
When it comes to insurance- regular roof inspections are your best friend.
We’ve stressed the importance of spotting damage when it’s at an early stage before. This doesn’t just save you money on replacement costs, it guarantees your insurance will cover larger issues down the road.
With regular inspections from a qualified professional, you have the paperwork to show your roof is fully eligible in the event of a catastrophic failure.
Here are a two other tips to increase your home’s eligibility for maximum coverage:
#1. Take photos of your roof before damage occurs. Photos are a powerful tool when it comes to insurance. Before-and-after photos prove your roof was healthy prior to the accident in question. It’s a testament to your good stewardship.
#2. Keep your receipts. Replaced damaged shingles last year? Keep every record. Had a roof inspection? Hold on to the paperwork. Just like before-and-after photos, this proves you perform regular maintenance on your roof and that the damage came from the storm- not your neglect.
When was the last time you had your roof evaluated for damage?
If it’s time for a check-up, we’re happy to help. We offer free roof evaluations and would love to get you on our schedule. Our team can spot signs of damage before they get out of hand, saving you thousands on repairs.
Did Insurance Cover a New Roof AND Give You $3k “Leftover”?
Have you heard stories of insurance covering a new roof with thousands left to spare? Sounds like a good deal after all you’ve paid into the company over the last few decades, right?
While this might seems like something to celebrate- it’s actually a cause of concern.
Yes, under most policies, you can keep money leftover from your insurance claim. But more often than not- money leftover means you haven’t replaced your damaged exterior with the same quality of material that was once there.
Long story short: Don’t take the insurance money and run with the cheapest bid so you can go buy a new tv!
When discussing how to read contractor bids we warn against taking the lowest option. You get what you pay for! And if you’re paying a lowball number, it’s almost always because your contractor is cutting corners or using an inferior product.
Cheaper materials have shorter lifespans: Take architectural shingles vs 3-tab. Architectural shingles cost more but last longer, have added durability, and increase your home’s insulation. By opting for the cheaper option you’re putting your roof and home at risk.
Your insurance company isn’t just handing you a pile of cash to say “thanks for being a great customer”. They’ve evaluated your exterior and carefully calculated what it would cost at market value to protect your home.
Enough about home insurance. Next, let’s take a look at the other option: Home equity.
What is Home Equity?
In simple terms? Home equity is what you’ve already paid on your home vs. what you owe.
For example, if you owe $80,000 on your home but it’s valued at $100,000- your equity is $20,000.
There are a couple of ways to increase your equity. The first is by making mortgage payments. If the money your debt goes down but your home’s value remains the same- your equity in the home goes up.
You can also make improvements to your home that increase its value- and therefore your equity. In the first installment in this series, we discussed how roof and exterior projects can raise your home’s value.
The last way you earn equity is through appreciation. Appreciation is determined by market trends and inflation. Here in Schuylkill County, homes are worth 19.3% more than they were last year. While this may present a headache for homeowners looking to buy, it’s a powerful tool for those building equity.
So how do you take out home equity?
A quick google search will tell you the easiest way to get home equity out of your house is to sell it. While this is the fastest (and sometimes easiest way) it’s not the only option.
Have you heard of the term home equity loan? Or a home equity line of credit? This is one way you can borrow against what you “have” in your home.
Let’s use the same example as before. You owe $80,000 on your home, but it’s valued at $100,000. A lender may allow you to borrow some of that $20,000 in equity. With this you’ll be making two payments; one on your mortgage, the other on the HELOC (Home Equity Line of Credit) or HELOAN (Home Equity Loan).
This process of deciding how much a lender will give you is called Loan to Value (or LTV for short). The higher your LTV, the riskier it looks to a lender. This chart from Lending Tree offers a helpful look at the different between a high and low LTV:
Every LTV and equity loan is different. But with so many fluctuating factors? There’s no one size fits all.
Interested in home equity loans? This loan-to-value calculator is a helpful tool in the decision making process.
Need to make a big home improvement purchase but don’t want to deal with the headache of a bank? There are other options.
Short Term Third Party Financing
Let’s be honest; the unexpected is scary.
Whether it’s market trends, inflation prices, or even something as simple as the weather, these are factors out of our control.
But this doesn’t have to be a cause for anxiety. Being aware of fluctuating costs and potential upcoming repairs helps you prepare for the future.
Not prepared for a new roof? Or don’t have quite enough savings for the new kitchen remodel? Some qualified contractors- Martin Roofing and Siding included- partner with suppliers or lending companies to offer their own private financing.
In 2022, we began to offer our clients several options on financing. Why? Because paying for a small repair is often much less risky than waiting for a catastrophic storm and just hoping the insurance pays out enough.
We want everyone to have access to a safe, strong, and gorgeous home. So whether you need financing for an unexpected problem or you want to enjoy home improvements now and pay for them over time? We have options available for you.
Take the Risk out of Home Protection
If you’ve started to notice signs of damage or cause for concern on your exterior, give us a call at 570-345-0436 and we’ll assess the damage. Catching warning signs early is the best way to save for the future.
In our next installment, we’ll take a look at fun home projects and the return on value they carry. If you missed the first in the series, you can read up on it here.