Does your dream backyard include your own swimming pool? If so, one of the first considerations you have to make is how you will pay for it.
When you begin searching for financing options, you will find several. Keep in mind, though, some loan options are more expensive than others and may cause long-term debt. As a result, it is up to you to consider each option carefully to choose the one that best suits your needs.
The first option we’ll discuss to pay for your pool is a cash-out refinance.
What It Is
Refinancing is when you replace your existing mortgage with a new one. When you refinance, it is possible to reduce your monthly payment and interest rate.
Depending on the amount of home equity you have, you may be qualified to receive cashback when you refinance.
You can use the cash received for anything from home renovations or debt consolidation to buying a swimming pool.
How to Do It
To be considered for a cash-out refinance, you must have enough home equity. This is what you are borrowing against.
For example, if you have a home worth $250K and you still owe $150K on your mortgage, you have $100K in home equity, which is the same as 40% of your home’s total value.
Experts recommend retaining a minimum of 20% equity after you refinance – though some lenders will go lower. With the example above, it means you could borrow $50K.
If you borrow this amount, you receive a new mortgage for $200K – the $150K you still owe and the additional $50K. At closing, you receive a $50K check. Keep in mind that you still must cover the closing costs, which range between three and six percent, and usually, these can be rolled into the loan.
The main advantage offered by cash-out refinancing is that you can borrow up to 80% of the equity in your home. If you have owned your home for a while, or if you made a significant down payment, that will likely be more than enough to cover the cost of your new swimming pool.
However, that’s not the only benefit offered. Some of the others include:
- Reduce or increase your total mortgage term
- Change from an adjustable-rate to a fixed-rate mortgage
- Change from one mortgage program to another
- Eliminate mortgage insurance
- Take a co-borrower off your mortgage loan
With the low rates present today, cashing out is a smart option if you have enough equity to cover a pool’s cost and it makes sense for your long-term financial plans.
The biggest downside of a cash-out refinance is that you must apply for an entirely new mortgage. This means you have to re-qualify for the loan.
Some other potential cons include:
- You must resubmit your income information
- Lenders will check your credit rating
- Mortgage balance will go up, which increases monthly costs
- You must pay the closing costs
It is up to you to weigh the benefits of cashing out, which can reduce your rate against the total cost of refinancing.
Home Equity Line of Credit (HELOC) Pool Financing
If you are looking for another option, consider a home equity line of credit, or HELOC.
What It Is
The HELOC is a type of revolving credit line that is secured by the equity you have in your home. Essentially, the HELOC works like a credit card.
If you are approved for this, you can get enough credit to finance your pool and repay the money on a set, drawn-out schedule.
How to Do It
With a HELOC, requirements vary based on the lender. While this is true, there are a few requirements you must meet. Some of these include:
- Debt-to-income ratio under 40%
- Home value that’s 15% more than you owe
- Credit score of 620 or higher
The process to get a HELOC is similar to purchase or refinance a mortgage. You must provide the same documentation and show that you are creditworthy to receive the loan.
To begin the process, figure out if you have adequate equity in your home. Once you know what you can borrow, you can begin looking for the right lender. Make sure to have all the needed documentation before applying to ensure there are no delays in the process.
Once you have the needed documents, you can apply for a loan with the lender you choose. At this point, you will receive disclosure documents. Make sure to review these and ask any questions you have.
The underwriting process usually takes the longest amount of time – it can range from a few weeks to a few months or more. The final step is the closing, which is when you will sign the paperwork and your funds are provided.
There are several benefits offered by the HELOC. These benefits include:
- Monthly payments based on what is withdrawn
- You only pay interest on what you borrow
- Lower interest rates compared to credit cards and personal loans
- Interest may be tax-deductible
According to experts, the home equity line’s two main advantages is how quickly you can get the funds and the cost of the loan. Usually, you will receive funding in a few weeks rather than a few months. Also, minimal documentation is required.
While the HELOC offers several advantages, there are several potential disadvantages, too. These include:
- Variable interest rates (non-fixed payments)
- Increases mortgage balance
- Increase your “risk” as a borrower
- Home is collateral for the HELOC
Remember, since your home serves as collateral for the HELOC you receive, if you are unable to make the monthly payments, you are at risk of losing your home, along with your new pool.
Home Equity Loan Pool Financing
The home equity loan pool financing is very similar to the HELOC mentioned above. This is because it is a different type of second mortgage.
What It Is
When you use a home equity loan, you will tap into the home’s equity, which lets you borrow against it and receive cash for any purpose. This includes the purchase of a swimming pool.
However, rather than accessing the line of credit when you need funds, which is what you do with the HELOC, you receive a single cash payment to cover the swimming pool’s cost.
How to Do It
To get a home equity loan, you have to meet certain requirements. Some of these requirements include the following:
Have Adequate Home Equity
It is necessary to have between 15% and 20% equity in your home. Having adequate equity is essential, as this impacts what you can borrow. It also reduces the possibility you will go underwater on your mortgage.
Credit Rating in the mid-600s
Some lenders have specific credit score requirements. The higher score you have, though, the lower your rates will be.
Reliable Payment History
You can improve the likelihood that you will be approved for a loan and agreeable loan terms by maintaining a record that shows you have paid your bills on time. If you establish a pattern of on-time payments, it shows the lender you are a low-risk borrower.
Lenders want to ensure your income is sufficient to repay the loan you receive. Higher incomes will also improve your debt-to-income ratio.
Your debt-to-income ratio should be 43% or under. Usually, lenders prefer borrowers who have minimal debt compared to their total income. This shows lenders you are low risk.
There are several benefits offered by taking out a home equity loan to finance your swimming pool. For example:
- Fixed interest rates and payments
- Lower rates than HELOC
- Interest is often tax-deductible
With the home equity loan, you can get financing faster and easier than the cash-out refinance and HELOC mentioned above.
The potential downside of a home equity loan includes:
- Closing costs
- House serves as collateral
If you stop making payments, your house may be taken.
Personal Loans (“Pool Loans”)
Do you want to avoid tapping into the equity in your home to finance your swimming pool? If so, a personal loan may be the best option.
What It Is
The personal loan is often called a “pool loan.” It is used for various home improvement projects, like the installation of a new pool. These are installment loans that remain unsecured.
An unsecured loan is one that does not require collateral to qualify for. Instead, you will repay the loan amount, plus interest and fees, over a set amount of time, at a set interest rate.
How to Do It
The process of getting a personal loan is similar to the others. However, it will vary based on the lender you choose. Some of the steps you will take include:
Know Your Credit Score
Having a higher credit score will increase your chances of qualifying for a personal loan and getting a better interest rate. Check your credit score before applying for a loan.
Don’t go with the first offer. Shop around to find the lender that offers the best interest rate and payment amounts.
If you pre-qualify for a loan, you will see the types of offers you are likely to receive. Some lenders will conduct a soft credit check during this process, which won’t impact your credit rating. Your basic information is needed to pre-qualify for a loan.
Compare Your Offers
Before going with the personal loan, consider if a secured loan or 0% credit card may be a better option. It would help if you explored all possibilities before making a final decision.
Know the Details of the Loan
Before signing anything, make sure you read the documents carefully. Know how the lender works and what is required of you after taking the funds.
After finding the perfect lender, you need to apply for the loan and submit the required documentation. The lender will conduct a hard credit check and then approve or deny your application. If approved, you can receive funding in a week (in many cases).
Choosing a personal loan for funding your swimming pool offers several benefits:
- Receive funding faster
- No risk of foreclosure
While personal loans are a great option, there are some possible cons, which include:
- Higher interest rates
- Pay more over time
It is important to consider those potentially higher interest rates and total payment before choosing a personal loan for financing the purchase of a swimming pool.
Should You Finance Your Pool? Is It Smart?
If you cannot afford the lump sum cost of a pool upfront, but it fits into your longer-term financial budget, pool financing is a smart option. This is also a great option if you have enough cash for the purchase but don’t want to deplete your savings or resources. However, finding the right pool financing option for you and your financial situation is essential.
Remember, the installation of a new swimming pool is an investment. If you are like many people, you may have a few reservations about spending so much of your savings on this.
You have to decide for yourself if financing the pool is right for you. Costs will always vary based on several factors (including your pool builder), you can read this guide on inground pool costs to get an idea of how much swimming pools typically cost.
Is There a Best Way to Finance a Pool?
The best option for financing a pool is dependent on your financial goals. For example, if you want to reduce your mortgage rate while getting the cash needed to install a pool, then a cash-out refinance may be the best option. However, if you want to have a credit line, you can access as needed, then the home equity line of credit is a much better match.
The home equity loan will provide you with fixed monthly payments and a fixed interest rate.
You may wonder if you have options if you do not own a home, and the answer is yes. It is also possible to get the funding needed if you do not have equity or if you don’t want to use it. In this case, consider a personal loan.
The short answer is – the best way to finance a pool is dependent on your situation and your needs. Be sure to take a close look at your finances to make the right decision.
What Credit Score Do You Need for Pool Financing?
As with any loan or borrowing process, your credit will come into consideration. The credit requirements will vary based on the lender you use and the type of loan you apply for pool financing. Usually, minimum scores that are approved range between 600 and 800.
If you plan to finance your swimming pool with a home equity line of credit or with a home equity loan, you will probably need a credit rating that is 720 or more.
Sometimes, you can find lenders who will have less stringent credit requirements. This means you may be able to get the needed financing with a lower score. However, if you have a lower score, it means you will pay a much higher interest rate, and over time, pay more for the loan you receive.
How Hard Is It to Get Pool Financing?
If you have good credit, you will find getting financing for a new swimming pool is a simple process.
Remember, all lenders will check your credit rating before they approve your application. If you have any type of derogatory information on your credit report or have made late payments, then this information is shown on your credit report. This may result in your application being denied.
To help avoid this denial, look at your credit score before you apply for a loan. This will let you know if you should work on your score before submitting your application.
If your credit rating is lower than it should be, take some time to make payments on time and to reduce your debt-to-income ratio. This is going to help improve the likelihood of having your loan approved.
You can also work with professionals to find other options to help improve your credit rating.
How to Finance a Pool with No Equity
If you don’t have equity in your home, don’t worry, you aren’t alone. You may think you don’t have many options if you are in this situation; however, this is not always the case. In fact, there is a viable option for you to consider – a personal loan.
A personal loan can be secured or unsecured, but you can use something besides your house as collateral if you choose a secured loan. This ensures that everyone can get the pool they want with the quality and appropriate financing options.
Remember, though, that not all personal loans are the same. As a result, it is necessary to shop around the options, especially since nefarious individuals search for unsuspecting buyers to fall for their schemes.
With the right personal loan, you can get the funds you need quickly and then repay the loan over time. These types of flexible payments make it possible for you to get your pool now and pay for it later.
How Long Can You Finance a Swimming Pool for?
The term of the financing you get is dependent on the lender. You can find financing options that require repayment monthly for 24 months, 36 months, 60 months, or another time period.
It is a good idea to speak to the lender you are using about their customers’ terms. This will help you find a lender who has terms that will meet your needs and fit your financial situation.
If you find one lender that does not offer the terms you need, check with another one. This way, you can get the terms that best suit your needs.
How Do You Choose a Pool Financing Company?
Selecting a pool financing company can seem difficult because of all the options, but the key is to figure out the type of loan you need and then learn about the companies that offer it. When deciding on what lender to use, you can consider things like the company’s reputation and if you know anyone who has used the lender in the past.
With this information, you can find a lender that offers fair terms for the loan needed to build your pool. Remember, not all lenders are the same, so it is a good idea to speak with a company representative and ask any questions you have before signing anything or accepting any funds from the lender.
With the right lender, you can feel confident that your rights will be protected and that you will have a loan that you will be able to repay without a problem. If an offer seems too good to be true, it probably is, which is why you should look elsewhere for the financing you need.
How Do You Check Your Eligibility for Financing?
Regardless of the type or size of swimming pool you want, it represents a huge investment. This means it is up to you to be smart about the financing. Consider using your home equity, which will help you get the lowest interest rate, which results in a lower cost-of-ownership for the pool.
You can use online calculators and other tools to determine if you are eligible for the different types of financing. Many of these are offered for free, so it is a good idea to make sure you can get the funding before moving forward and submitting an application to a lender.
Enjoying Your New Swimming Pool
When it comes to swimming pool financing, you have a lot of options. Consider each of the ones here, including cash-in refinancing, HELOC, home equity loans, or a personal loan. Each of these offers specific pros and cons that make them right or wrong for each person.
Taking your time and considering all the factors and options here will help ensure you make the right decision to get the swimming pool you have dreamed of. While finding the right loan option may seem like a challenge now, it will be worth it when you are relaxing in your personal backyard oasis. Knowing what to expect is the best way to ensure you get the financing options needed for your new pool.
This article was done in partnership with a Certified Financial Advisor and the information presented should not be taken as a recommendation for any one financing option. Always consider your current financial situation, long-term financial goals, and consult your own financial professionals if needed to make the best decision for your situation.