If, as they say, the American Dream is to own your own home, then the sensational sequel, for many people, is to have your own swimming pool installed.
Few other home improvements have the same potential to turn a property into an oasis for parties, playtime for the kids, or simply hanging out and spoiling yourself.
But paying someone to build that backyard paradise could become a nightmare without the right swimming pool financing in place. (Unless you happen to have $30,000 to $60,000 lying around, of course. That’s the average cost of adding an inground pool.)
How to Finance a Swimming Pool
If you don’t have enough saved to pay upfront for a pool — or even if you do — you might be wondering what types of loans or other options are appropriate for this type of backyard remodel.
There are several pool financing choices available to homeowners — including home improvement loans and cash-out refinancing; home equity loans and home equity lines of credit; or credit cards and options offered through a pool company.
Before you take the plunge into financing a pool, you may want to consider the pros and cons of each type, including the overall costs of borrowing and whether you might qualify for a particular type of loan. Understanding some of the different ways you can finance a pool can help you decide what’s right for you. So, take a deep breath — we’re diving in.
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Using a Cash-Out Refinance to Pay for a Pool
Homeowners who have enough equity built up in their house may want to check into doing a cash-out refinance.
With this strategy, borrowers replace their existing mortgage with a new mortgage for a larger amount. Then, they can use the lump sum of cash they get back to pay for a pool (or pretty much anything they want).
Pros of a Cash-Out Refinance
When interest rates are low (as they are now), a cash-out refinance can have a few benefits.
• Eligible homeowners typically can borrow up to 80% of their home’s equity, which could be enough to cover the cost of putting in a pool — and maybe even some extras, like a new barbecue or lounge chairs.
• Borrowers with good or improved credit, or those who bought their home when interest rates were higher, may be able to refinance to a lower interest rate.
• A mortgage interest tax deduction may be available on a cash-out refinance if the money is used for capital improvements on your property. (Consult with a tax professional for more details as they apply to your situation.)
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Cons of a Cash-Out Refinance
There are some downsides to going the refi route, including:
• Borrowers must go through the mortgage application process all over again to get a new loan, which usually means submitting updated information, getting an appraisal, and waiting for approval.
• If your credit isn’t great (maybe your credit cards are maxed out from other improvements), you may not be able to get the new loan.
• Borrowers may have to pay closing costs, generally from 2% to 6% of the total loan amount. (That’s the old loan plus the lump sum that’s being added.)
• If the term on the new mortgage is longer than the remaining term on the original loan, it could mean more years of making payments (and paying more in interest overall).
• Your mortgage is a secured loan, which means if you can’t make your payments, you could risk foreclosure.
Using a Home Equity Line of Credit to Finance a Pool
Another way borrowers can use their home’s equity to finance a pool is to take out a home equity line of credit (HELOC).
A HELOC is a revolving line of credit that uses your home as collateral. It works much like a credit card in that:
• The lender gives you a credit limit to draw from, and you only repay what you borrow, plus interest.
• As you pay back the money you owe, those funds become available to you again for a predetermined “draw” period. (Usually 10 years.)
Pros of a HELOC
Here’s why a HELOC can be a popular way to pay for home improvements:
• Borrowers only pay interest based on the amount they actually borrow, not the entire amount for which they were approved, as you would with a regular loan.
• The interest rates are generally lower than credit cards and unsecured personal loans.
• The interest on HELOC payments might be tax deductible, according to IRS rules , if the funds were used to “buy, build, or substantially improve your home.”
• A HELOC may be easier to obtain than some other types of loans, and the costs might be lower.
Cons of a HELOC
Just as with a credit card, if borrowers aren’t careful, a HELOC can become problematic. Here’s why:
• HELOCs generally come with a variable interest rate, which means when interest rates increase, the monthly payments could go up. Although there may be a cap on how much the rate can increase, some borrowers might find it difficult to plan around those fluctuating payments.
• HELOCs are easy to use — and overuse. Some of the same things that can make a HELOC appealing (easy access to cash, lower interest rates, and tax-deductible interest) could lead to overspending if borrowers aren’t disciplined.
• Adding a HELOC could affect your ability to take out other loans in the future. When lenders are deciding whether to offer a loan, they look at a borrower’s existing debt load. If you add a HELOC to a mortgage, car loans, and maybe some credit cards and other debt, it could appear to increase the risk that you won’t be able to make payments.
• Just as with a cash-out refinance, the borrowers’ home is used as collateral, which means the lender could foreclose if something happens and you can’t make your mortgage payments.
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Using a Home Equity Loan for Pool Financing
A home equity loan is yet another way to tap into the money you’ve already put into your home. But unlike a HELOC, borrowers receive a lump sum of money.
Pros of a Home Equity Loan
Home equity loans have a few positives that make them worth considering for financing a swimming pool.
• Unlike HELOCs, which typically come with a variable interest rate, home equity loans usually have a fixed interest rate. The borrower can expect a reliable repayment schedule for the duration of the loan.
• Because it’s a secured loan, the lender may consider it lower risk, so the loan may be easier to get and the interest rate may be lower than other options.
• And, once again, there is a potential tax break. If the loan is used for capital improvements to the home, the interest may be deductible.
Cons of a Home Equity Loan
There are two main downsides to a home equity loan.
• Borrowers may run into a long list of fees when closing on a home equity loan. Some aren’t that high, but they can add up.
• Borrowers might put their home at risk for foreclosure if they can’t make their loan payments.
Using a Personal Loan
You don’t necessarily have to tap into your home’s equity to finance a swimming pool. Financial institutions offer unsecured personal loans that can be used for this purpose.
If you haven’t owned your home for long, or if your home hasn’t gone up much in value while you’ve owned it, a personal loan may be an option. Here are some pros and cons:
Pros of a Personal Loan for Pool Financing
Applying for an unsecured personal loan can be a much more straightforward process than getting a secured loan.
• With a personal loan, borrowers don’t have to wait for a home appraisal or wade through the other paperwork necessary for a loan that’s tied to their home’s equity. There generally are fewer fees. And if the loan is approved, you may get your money faster.
• Because your home isn’t being used as collateral, the lender can’t foreclose if you don’t make payments. (That doesn’t mean the lender won’t look for other ways to collect, however.)
Cons of a Personal Loan for Pool Financing
Cost is the big factor when comparing personal loans to other borrowing options.
While it may be easier and less expensive upfront to get an unsecured personal loan, interest rates may be higher for this type of loan than a loan that requires collateral. However, borrowers who have good credit and don’t appear to be a risk to lenders still may be able to obtain loan terms that work for their needs.
Should You Finance a Pool?
Installing a pool is an expensive home improvement, so you may want to (or have to) borrow some money to pay for all or part of the project.
If you do decide to borrow, it’s pretty easy to go online and research multiple lenders to find the best loan terms for you. Once you’ve estimated how much money you may need, you can shop lenders to find the best interest rate and loan length, and to get an idea of how much your monthly payments will be. You also can check on all the upfront costs of getting the loan. If timing is important, you also can ask how quickly you’ll find out if you qualify and how long it might take to get your money.
If you’re considering using a loan or line of credit to pay for your pool project, there are several financing options.
Applying for a personal loan tends to be a simpler process than what might be required for other types of loans — and you won’t have to use your home as collateral. Another plus: Online personal loans, like those available through SoFi, can be ready in just a few days. But each type of financing has some pros and cons, so it can be useful to shop around and see what would work best for you.
Pool Financing FAQs
Q: What credit score is needed for pool financing?
A: Every lender has its own process for evaluating a borrower’s creditworthiness — and different types of loans can have varying requirements. If your credit score is in the fair range (below 670) you still may qualify for a personal loan with some lenders. But the better your credit, the better the chances are that you can qualify for more types of loans, lower interest rates and/or a higher loan amount.
Q: Is it smart to finance a pool?
A: Borrowers who have enough cash saved to pay upfront for a pool may still want to consider financing all or a part of their purchase if they want to keep that cash accessible for emergencies and other needs. Financing with a low-interest loan (when you can afford the payments) can make paying for a pool manageable. But before you borrow a large sum, you may want to consider how long you plan to live in your current home, how much pool maintenance might cost each month, if you’ll actually use the pool enough to make it a worthwhile purchase, and if the value added to your home is worth the investment.
Q: How hard is it to get pool financing?
A: A lot depends on your credit and how much you hope to borrow. Lenders want to be certain borrowers can pay their loans. If you have a track record of making late payments, or if you already have a high debt-to-income ratio, it may be difficult to qualify for a pool loan. You may choose to wait until your financial situation improves before you apply for a loan.
Q: Don’t pool companies usually offer financing?
A: Yes, but that financing likely will come from a financial institution the pool company works with — not the pool company itself. If you get a loan offer through a pool company, compare the rates and other terms to those offered by a few lenders before signing on the dotted line.
Q: What about using a credit card?
A: If you’re only financing a portion of the pool’s cost, you could consider using a card with a low- or zero-interest introductory rate. But if you can’t pay off the balance during the introductory period and the rate flips to a higher rate, financing the entire amount or even a chunk of the cost could get expensive.
Q: How long is the typical pool loan?
A: The length will depend on the type of loan you choose and could range from a few years (for a personal loan) to decades. Borrowers can shop for a repayment pace that suits their needs when they research pool loans.
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