Funding a New Roof With Home Equity: Is a HELOAN or HELOC a Good or Bad Idea?

When your house needs a new roof, the costs can quickly add up to tens of thousands of dollars. Home equity loans (HELOANs) and home equity lines of credit (HELOCs) offer homeowners a way to tap into their property’s value to fund major renovations like roof replacement.

These financing options typically offer lower interest rates than credit cards or personal loans, making them attractive for large home improvement projects.

However, the decision to use your home’s equity for a new roof depends on factors like your financial situation, the urgency of the replacement, and your long-term plans for the property. Here’s a closer look at how to make the best choice.

Table of Contents

1. Can you use a home equity loan for new roof?
2. When using a HELOC or home equity loan for a roof makes sense
   1. ✅ The roof is damaged or failing
   2. ✅ You’re planning a high-ROI upgrade
   3. ✅ You want to avoid higher-interest options
3. When to think twice about tapping home equity for a roof replacement
   1. ✖️ You’re planning to sell soon
   2. ✖️ You’re unsure about your ability to repay
   3. ✖️ You don’t have sufficient equity
4. HELOAN or HELOC for a new roof: Which is better?
   1. When to consider a HELOAN
   2. When to consider a HELOC
5. FAQs
   1. Does a new roof add equity to your home?
   2. Are there any programs to help pay for a new roof?

Can you use a home equity loan for new roof?

Both HELOANs and HELOCs allow you to access your home’s equity to fund repairs and improvements, including roof replacement.

Home equity loans provide a lump sum of cash upfront with fixed interest rates and predictable monthly payments. In contrast, HELOCs function like a credit card secured by your home, offering a revolving line of credit that you can draw from as needed during a specified draw period.

Approval for either option depends on several factors, including how much equity you have in your home, your credit score, your debt-to-income ratio, and the lender’s specific requirements.

When using a HELOC or home equity loan for a roof makes sense

Tapping your home’s equity for a new roof can be a smart financial move under some of the following circumstances.

✅ The roof is damaged or failing

When your roof is actively leaking, has missing shingles, shows signs of mold, or has sustained storm damage, replacement becomes urgent rather than optional.

Insurance claims may not cover the full replacement cost or could take months to process, leaving you exposed to further damage.

Home equity financing can bridge this gap, allowing you to address the problem immediately while potentially avoiding costlier repairs down the road.

✅ You’re planning a high-ROI upgrade

Some roof replacements offer a strong return on investment (ROI)—the percentage of your investment that you’ll recoup when you sell your home.

For example, energy-efficient roofing materials, solar-ready installations, and high-end architectural shingles can increase your property’s resale value. Since these upgrades often cost more than basic replacements, borrowing against your equity may be worthwhile if saving up would take too long.

✅ You want to avoid higher-interest options

Home equity products generally offer significantly lower interest rates than unsecured financing options like credit cards or personal loans. Home equity products also usually have much longer repayment terms, translating to lower, more affordable monthly payments.

When to think twice about tapping home equity for a roof replacement

While home equity financing can make sense in many situations, there are circumstances where it might not be the best choice.

✖️ You’re planning to sell soon

If you’re considering selling your home within the next few years, using equity for a roof replacement may not provide enough time to recoup your investment.

What’s more, ROI varies significantly by location, roofing materials, and local market conditions. Unless the roof replacement is absolutely necessary for the sale, you might be better off negotiating the roof’s condition into your sale price.

Ultimately, avoid using equity if the ROI won’t be worth it. It could still make sense because you will get the money back when you sell, but be sure to avoid fees when getting the loan.

✖️ You’re unsure about your ability to repay

Because both HELOANs and HELOCs use your home as collateral, missing payments can ultimately lead to foreclosure. HELOCs require particular discipline since you can continue borrowing during the draw period, potentially creating a larger balance than initially planned.

✖️ You don’t have sufficient equity

Most lenders want you to have at least 15% to 20% equity in your home before approving a HELOC or HELOAN. That usually means you can borrow up to 80% to 85% of your home’s value, minus what you still owe on the mortgage. This percentage is called your loan-to-value (LTV) ratio.

For example, if your home is worth $300,000 and you owe $240,000, your equity is only 20% and your LTV is 80%—right on the edge of what many lenders allow.

Some lenders stretch to higher limits, but borrowing close to 100% of your home’s value is risky since a dip in property prices could leave you underwater.

I have helped numerous clients with funding home improvements, and each situation is different based on the following factors:

• How much are the repair costs, and are they all at once or spread out over time?
• How much equity do you have in their home?
• How much “free cash” do you have to use?
• What is the current interest rate environment? Rising, falling, or steady?
• What is your repayment plan and ability to repay?
• Do you intend to sell the house soon?
• What are your financial habits? If you’re spenders, don’t get a HELOC!

The answer to each of these questions will typically result in a different solution.

Home equity loan or HELOC for a new roof: Which is better?

Choosing between a HELOC and HELOAN depends on your specific project needs and financial preferences. Here are situations where one or the other may make sense.

When to consider a HELOAN

HELOANs work particularly well for complete roof replacements where you have a clear, upfront cost estimate.

The lump-sum funding allows you to pay contractors immediately, and fixed interest rates provide predictable monthly payments. The tradeoff is some HELOANs can come with high closing costs and don’t offer ongoing access to funds if additional expenses arise.

When to consider a HELOC

HELOCs are better for projects where costs might be uncertain or work will happen in phases. You only pay interest on what you actually draw, and many HELOCs offer interest-only payments during the initial draw period. What’s more, some lenders don’t charge closing costs for HELOCs.

The main drawbacks include variable interest rates that can increase your payments over time, and potential payment shock when the draw period ends. However, some of the best HELOC lenders, like Figure, offer fixed-rate options, combining flexibility with payment predictability.

Still, in a rising interest rate environment, you may want to avoid a HELOC.

I’ll give an example of a client—me! I was in the market to sell my home and buy a new one in the next two to three years. My old home had a value of $300,000 with $100,000 remaining on the mortgage. I took out a HELOC for $140,000 (80% LTV), and closing costs were $99.

It was in 2015, so HELOC interest rates were under 4% and home equity loan interest rates were about 5%. I needed to do a slew of home repairs and didn’t have the cash to do them. Besides, I knew I was selling my home, so the loan would be paid off at settlement.

This HELOC also gave me some extra cash that I used as down payment on my new home because I bought the new home before placing the old home on the market. By doing so, it enabled me to move and clean out my old house before putting it on the market. Once the house was sold, the HELOC and mortgage were paid off, and I had money leftover.

FAQs

Does a new roof add equity to your home?

Yes, replacing your roof can add equity because it increases your home’s value and makes it more attractive to buyers. A new roof also improves your home’s safety and energy efficiency, which appraisers may factor in when determining value.

While you might not recoup 100% of the cost, a roof replacement is often considered one of the better home improvements for return on investment.

Are there any programs to help pay for a new roof?

There are. Depending on where you live and your financial situation, you may qualify for:

• Government programs: The FHA’s 203(k) loan and Fannie Mae’s HomeStyle loan can roll roof replacement costs into your mortgage. Some state and local governments also offer weatherization or repair assistance.
• Nonprofit and community resources: Organizations like Habitat for Humanity or local housing agencies sometimes provide grants or low-cost repairs for homeowners in need.
• Insurance coverage: If your roof was damaged by a covered event (like a storm), your homeowner’s insurance policy may cover some or all of the cost.

If you don’t qualify for a program, financing options like HELOCs, home equity loans, or personal loans can help spread out the expense.

Interestingly, I use my life experience to serve my clients. In the scenario of my personal HELOC, one additional non-financial thing came out of it. After I did the home improvements, I loved my house like never before. So, I spent that money for the next homeowner to enjoy, and I only got one to two years out of it.

Thus, when people are thinking of doing “necessary” home improvements for a future sale, I encourage them to do it sooner so they can enjoy it. After all, new kitchen and bathrooms are still “new” in three years, so why wait until immediately before selling. Get some personal enjoyment out of it.