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Everyone wants to swim.
Swimming pools are becoming increasingly popular as more homeowners across the country are installing pools while buyers look for homes with pools. In 2020, in-ground residential pools increased more than 20 percent from the previous year.
Today, a home with a pool sells for an estimated $27,199 more than a comparable home without a pool, according to the National Association of Realtors. However, since pools typically cost over $50,000 to install, they don’t exactly offer a great return on investment.
Always get quotes from a few different contractors before deciding on a pool installation company.
Installing a pool in your backyard doesn’t necessarily pay off when you ultimately decide to sell your home. But if you plan to do it, there are a few ways to pay for it ahead of the hot summer season. With current low interest rates on home mortgages, now could be a good time to consider financing a swimming pool.
What is a pool loan and how does it work?
You may have seen banks and other lenders advertise something called “swimming pool loans” — these are usually unsecured personal loans that can be used for almost anything.
Personal loans usually have higher interest rates than other financing options. So, if you’re interested in financing a pool for your home, we recommend researching a few different types of financing first.
Regardless of which financing option you choose, make sure you understand the entire obligation, including all fees and costs, associated with pool financing. Many financing options require you to use your home as collateral – which means you risk losing it if you can’t pay back the loan. For a major purchase like a swimming pool, loan calculators can help you estimate the cost.
After all, you don’t want to overwhelm your finances for that backyard improvement. “A pool supplement should enhance your life and lifestyle without compromising your ability to comfortably meet critical financial commitments such as mortgage expenses, education savings, retirement funds, car payments and other ongoing expenses,” said Todd Nelson, senior vice president of Strategic Partnerships at Online rental LightStream.
The best ways to finance your new pool
Installing an in-ground pool is a big project, and many homeowners may not have the money to pay for it out of pocket. If you want to finance a swimming pool, there are various options.
A home equity loan allows you to borrow against your home equity loan. This is also known as a second mortgage. How much you can borrow depends on how much your home is worth and how much you owe on your first mortgage. This type of loan can be a good option if you have a lot of home equity, but it may not work if you recently bought your home.
“These loans often don’t provide enough financing to cover the full cost of a new homeowner pool,” said Justin Goldman, CEO and co-founder of RenoFi, a financial services platform that works with lenders to offer renovation loans. “Pools often cost at least $50,000, depending on the market, materials, and size, so the average homeowner with a $400,000 home that has paid off $80,000 to date could only get a $40,000 loan, assuming the bank’s maximum borrowing capacity is 90% of current value.” This requires the homeowner to cover the remaining costs and repay the loan over time.
A home equity line of credit, or HELOC, offers a more flexible way to borrow against your home equity. Instead of receiving a lump sum like you would with a home equity loan, a HELOC is a revolving line of credit. Much like you would use a credit card, a HELOC allows homeowners to borrow money and use it as needed.
A cash-out refinance is a type of home mortgage. You refinance your current mortgage with a new one that is worth more than your home debt. You get the cash difference back as a lump sum that you can use to finance a pool. If you have built up enough home equity, this can be a cheap financing option.
“If you’re already planning on refinancing, a cash-out refinance is a great option because you don’t have to take out a second equity loan, you’re just refinancing your first mortgage. Closing costs can be high, though, so make sure you refinance at a lower rate,” Goldman said.
These loans are usually unsecured, so you don’t have to worry about putting up your home as collateral. However, since personal loans usually do not require collateral, they also come with higher interest rates. Before you decide on a personal loan, you should at least look around for other financing options for home improvement.
What you should consider when applying for a pool loan
When applying for pool financing, your personal creditworthiness is paramount. The higher your credit score, the better interest rate offers you are likely to get. Many lenders offer the best terms for borrowers with credit scores in the mid-700s and higher.
The length of the loan term depends on which method you choose for pool financing. But many lenders allow terms of a decade or more. When deciding on funding, consider all of the costs associated with the project.
“With any renovation, it’s important to know how much you have available,” Nelson said. “With a solid budget, you can prioritize the scope of your project; Make informed decisions about how much you have to spend on construction work, products and services; and determine how the project can be financed in the most economically sensible way.”
It’s a good idea to overestimate expenses when budgeting. There are usually costs that you may not see at the planning stage.
“If you dig up your background to install a pool, it can affect groundwater management and the installation,” Goldman said. “A lot of people don’t take into account any permits or surveys that their community might ask for when they do their budgeting.” You don’t want these hidden costs to surprise you.
Pool Loan vs. Direct Purchase
Financing a swimming pool will increase the cost of the project in the long run. If you’re planning to take out a loan, a significant down payment over time will reduce the interest you’ll have to pay, meaning the overall financing cost will be lower.
Once the pool is installed, you should also budget for repairs. “Remember, annual pool maintenance costs add up. A loan can help fund the initial installation, but you’ll be spending thousands every year to keep it going,” Goldman said. Annual pool maintenance is expensive, so keep that in mind as you focus on your immediate summer plans.