Should You Get a Home Equity Loan for a Pool?
When you take out a home equity loan for pool financing, you’re essentially taking out a second mortgage. This is a fixed-rate installment loan secured by the equity you have in your home — that is, the portion of your home you own outright, after having made mortgage payments for a number of years.
If you’ve lived in your home long enough to have accumulated sufficient equity, using a home equity loan for a pool could make sense for you. But before diving in headfirst, you’d be wise to consider other pool financing options and then decide which one works best for you.
Using a home equity loan for a pool: Pros and cons
The advantages to using a home equity loan for a pool installation include:
Attractive interest rates. A home equity loan typically comes with a lower interest rate than you would get when using a credit card or taking out a personal loan.
Fixed interest rates. Home equity loans usually come with fixed interest rates, which let you calculate the total cost of pool financing ahead of time. On the other hand, home equity lines of credit (HELOCs) and credit cards carry variable interest rates, which can increase annually along with prevailing market rates, hiking your monthly loan payments in the process.
Greater resale value on your home (maybe). In areas of the country where weather is warm year-round and pools are commonplace, adding a pool could almost surely boost your home’s resale value. However, in other areas, especially those with shorter summer seasons, a pool could actually deter some buyers because of the added maintenance expense. If you’re concerned about how a pool will affect your resale value, consult a real estate professional for their take on your local market.
There are also drawbacks to using a home equity loan for a pool, chiefly the risk to your house:
Your home is at stake. Because a home equity loan uses your home as collateral, if you cannot keep up with your monthly payments, the lender can foreclose on your house.
You’ll pay closing costs. Taking out a home equity loan involves closing costs and fees. While these costs vary by lender, they typically run between 2% to 5% of the loan amount. Most other pool-financing options listed below include similar fees, which may or may not be lower than those on home equity loans. The annual percentage rate (APR) advertised for any given loan takes into account its interest rate and any closing costs and fees, so you can use APRs to compare loans.
Your approval process can be time-consuming. Applying for a home equity loan for a pool (or any other purpose) is much the same as applying for a first-time mortgage. The lender will check your credit and verify your income using pay stubs or tax returns. The lender also may ask for a copy of the deed to your home and could require an appraisal of the property. The time it takes to close on a home equity loan will vary depending on the lender and the complexity of your financial situation, but about four or more weeks is typical.
You may not have enough equity to cover the full cost of the pool. Lenders typically won’t allow you to borrow against all of the equity you have in your home. Instead, they calculate the maximum amount they’ll lend you by taking 85% of your home’s market value and deducting the amount you owe on your mortgage. For example, if your home is worth $250,000 and your mortgage balance is $190,000, your total equity is $60,000 but the most you could borrow would be $22,500.
You may not receive the best return on investment. In parts of the country where pool usage is limited to a relatively short warm season, the costs of operating and maintaining a pool could turn off at least as many buyers as it attracts — thus, it could end up contributing little to your home’s resale value. “Whether or not it increases the value of your home is entirely dependent on where you live,” said Tammi Lindley, a senior loan officer with Mortgage Express in Portland, Ore. “Are pools the norm for your neighborhood? Then it might make sense to have it installed.” If not, according to Lindley, potential buyers could consider them a safety hazard and maintenance nightmare. Once again, it’s probably advisable to consult a local real estate pro to get an idea how a pool will likely affect your home’s market value.
How much does it cost to build a pool?
The price of installing a pool can vary widely depending on its proportions, amenities, construction materials and local labor costs. According to the home-improvement website Fixr.com, the average pool in the U.S. — a 12-by-24-foot in-ground pool with a fiberglass liner and a concrete deck — costs about $50,000. At different ends of the pool spectrum, a bare-bones above-ground pool with a vinyl liner, metal frame and ladder (but no deck) can go for as little as $1,500, while an enclosed “infinity pool” with a concrete liner could cost $110,000.
Once a pool is installed, you’ll also need to budget for maintenance and operating costs — which HomeAdvisor, a digital directory of home-improvement service providers, estimates at $3,000 to $5,000 per year, comprising the cost of supplies, extra usage of water and electricity, and hiring pool-service professionals to open and close the pool annually, as well as perform regular cleaning and maintenance. Doing everything yourself could save you $1,000 annually, but could require additional investment in equipment, according to HomeAdvisor.
Alternative pool financing options
Using a home equity loan for pool financing may be your best bet, but before you go that route, it’s worth considering other options for pool financing, such as:
Home equity line of credit
A home equity line of credit (HELOC) is secured by your home like a home-equity loan, but instead of providing the loan as a lump sum, a HELOC gives you a revolving line of credit that works like a credit card. You can withdraw money as needed up to the maximum limit, pay the balance to zero and reuse the line for a set time frame called the “draw period.” After the draw period ends, you must pay the remaining balance in full or on a fixed-installment schedule. Interest rates on HELOCs are often variable, so they can change annually, but you pay interest only on the outstanding balance.
In a cash-out refinance arrangement, you apply for a new mortgage on your home, based on its current market value, and borrow some or all of the cash left over after you pay off your existing mortgage. If you can get a significantly lower interest rate than on your previous mortgage, you could end up with lower monthly payments — but unless you also get a shorter repayment term, there’s a good chance you’ll be adding to the overall cost of your home.
A construction loan is a short-term loan designed to fund construction or renovation of a home. The money you borrow is paid out in chunks called “draws” as the project progresses, and you make interest-only payments during construction. Once construction ends, you can pay off the loan in a lump sum or refinance the balance into a longer-term mortgage.
Fannie Mae’s HomeStyle Renovation mortgage can be used to combine mortgage refinancing with a construction loan. It allows you to refinance your current mortgage for an amount equal to your home’s current market value plus the amount its value can be expected to increase after renovations. Renovation plans must be submitted as part of the application process (swimming pools are allowable improvements). If approved, the loan will pay for your pool installation through a construction loan and then roll that balance into your new mortgage after construction is completed.
Some pool manufacturers and installation companies offer in-house financing. Compare the rates and terms offered by your installation company to those available through a home equity loan and other pool financing options to decide which is the best deal.
A personal loan is a form of unsecured credit — it is not backed by your home or any other collateral. If you finance your pool through a personal loan, then run into financial trouble that prevents you from paying your pool loan, you won’t lose your home. However, personal loans typically come with higher interest rates than secured loans and the maximum amount you can borrow may be lower than you can get through a home equity loan.
If you have a high enough limit on your credit cards, using one or more of them could be the fastest route to financing a pool installation. But credit cards typically come with high interest rates — the average APR offered on new credit cards is around 19% — and running up high credit card balances can do a number on your credit scores.
FAQs about pool financing
How long does it take to repay a home equity loan for a pool?
Repayment terms on home equity loans typically begin at five years, and can extend to 30 years, depending on how you negotiate the terms with the lender.
What credit score do I need to qualify for a home equity loan for a pool?
A credit score of 740 or higher will get you the best available rates on a home equity loan, though you’ll typically just need a score of at least 620 to qualify for one. Still, some lenders may require minimum scores as high as 680. It may also be possible to qualify for a home equity loan with bad credit.
Will using a home equity loan for a pool affect my credit?
Applying for and taking on additional new debt can cause a temporary drop in your credit scores, but your scores will typically rebound within a few months as long as you keep up with your bills. As with any debt you hold, if you miss a payment on your pool loan, that will cause a more serious drop in your credit score.
Will I need extra insurance if I install a swimming pool?
As long as you comply with all local laws concerning fencing and securing your pool, your homeowners’ policy will most likely cover property damage and liability exposure related to the pool.
Will I get back the cost of installing my pool when it’s time to sell my house?
Probably not. The National Association of Realtors, in its most recent Remodeling Impact report on outdoor home features, estimated that homeowners recover only about 43% of the cost of installing an in-ground pool, while a tiny 2% of REALTORS® said it helped them secure a sale. Still, more than 90% of homeowners with new pools reported a greater desire to be at home after completing the project, so the pool’s greatest benefit might ultimately be enjoyment of the time spent at your house.