The cost of a swimming pool may shock you. Depending on the size and features, you may be looking at a $20,000 or higher price tag. Chances are that you don’t have that kind of money just lying around waiting to be spent. So how do you finance your dream of adding a pool to your backyard? You have several options.
The pool company may offer financing options as you aren’t the first homeowner that needs help financing the pool. Pool companies form partnerships with financing companies to make it easy for homeowners to find financing.
You’ll realize several benefits by using in-house financing:
- It’s usually a seamless process since the pool company and lender likely work together often. You may sail through the financing process, getting your pool sooner.
- You don’t have to put up any collateral.
- You’ll know the terms before you even buy the pool.
While in-house financing has its benefits, there are also some drawbacks. Because the financing comes from a private lender, you’ll often find the fees and/or interest rates higher. You may also find it more difficult to qualify for the loan since there isn’t any collateral down.
Home Equity Loan
A pool is a home improvement of sorts. It does improve your home, but it probably won’t improve its value. If you want a pool for its recreational fun, go for it, but don’t do it because you think it will increase your home’s value. Most appraisers don’t include the pool in the home’s value. Whether you consider it a home improvement or not a home equity loan can be a great way to finance the pool.
Home equity loans offer a variety of benefits:
- You’ll typically find lower interest rates with a home equity loan or line of credit.
- Home equity loans and lines of credit typically have low fees.
- It’s easy to qualify for a home equity loan or line of credit especially if you have a large amount of equity.
Keep in mind that you put your home up as collateral with a home equity loan or line of credit. If you default on your mortgage, you could lose your home.
If you opt for the home equity loan, you’ll pay principal and interest payments from the onset of the loan. If you take out a home equity line of credit, you only owe interest payments for the amount you withdrew for the first 10 years. After that, you pay principal and interest payments for the next 20 years or until you pay the loan off in full.
You may also tap into your home’s equity with a cash-out refinance. This first mortgage program requires you to pay off your existing first mortgage. You then take more money out of your home’s equity. For example, let’s say your first mortgage has a balance of $150,000 and your home is worth $300,000. You can take out a loan larger than $150,000 with the cash-out refinance. Most lenders allow you to borrow up to 80% of the home’s value.
The cash-out refinance has the following benefits:
- You may find competitive interest rates since it’s a first mortgage.
- There are many lenders and loan programs available that suit people with different credit scores and qualifying factors.
- Using your home as collateral helps make it easier to qualify for a loan.
The cash-out refinance often has higher interest rates than a home equity loan. Lenders take a higher risk giving you a larger first mortgage. Lenders need to ensure that you’ll be able to afford your payments for the long-term, which is why they often charge higher interest rates.
In some cases, you may be able to take out a personal loan too. You’ll need excellent credit and a low debt ratio to qualify, though. Personal loans are unsecured, which puts the lender at risk. If you stop making your payments, the lender doesn’t have any collateral to come after, which puts them at risk of losing money.
Personal loans can be a good option when you don’t have enough equity in your home to take out a home equity loan or cash-out refinance. You can compare the personal loan rates and fees to the in-house financing options a pool company may offer.
Weigh all of your options when looking to finance a pool. Pay close attention to the fees and the total cost of the loan before making your decision.