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—Ways to borrow money for your backyard addition
Dreaming of a beautiful swimming pool, but the price of building one might overstretch your current home improvement budget? You will learn how to finance a pool with this simple guide to potential loan sources.
The good news is that a number of avenues for pool financing are available to help you fund that great outdoor addition!
Some homeowners don’t have the cash on hand to invest in a new pool. But many can use credit to obtain a pool loan or other financing.
Depending on where in the country you live and how your credit score stands, you may qualify to do so.
Before looking at different avenues for a pool loan, let’s review some financing basics and what to expect.
Definition and overview of swimming pool loans
Pool loans are designed specifically for financing new construction or renovation.
Homeowners can use the borrowed funds to cover the costs associated with building a new pool or remodeling an existing one.
Pool loans are rarely available from banks and credit unions. The majority come from financing companies that specialize in pool loans or other home-improvement financing.
Regardless of the source of the pool loan, certain terms apply, and understanding them is critical. Key points to consider:
- The total monthly payment (the exact dollar amount)—and what portion of it covers interest vs. the principal;
- The interest rate—is it fixed or variable;
- The terms—how many months or years you have to repay the money;
- Early payoff penalty—are there added costs for paying the loan off ahead of schedule
- The maximum amount of funding being provided; and
- If the entire amount of the loan must go toward a specified expense—such as a home improvement project.
Before signing any paperwork for a pool loan or charging a major purchase—like a home addition—to your credit, make sure you’re clear about all of the conditions and the fine print.
What types of swimming pool loans are available?
When it comes to financing a swimming pool, there are two chief types of pool loans to consider: secured pool loans and unsecured pool loans.
Understanding the differences between these types of loans can help you make an informed decision about which option may be best for your specific needs and financial situation.
Secured pool loans: securing a loan with collateral
Secured pool loans are loans that are backed by collateral. That means you pledge an asset—typically a home or other property—as security for the loan.
If you fail to repay the loan, the lender has the right to seize and sell the collateral to recover its losses.
In the 2000s, until the Recession, the majority of new pool loans were secured. Pool buyers relied on their escalating home equity to borrow money.
Today, lenders specializing in home improvement financing do not offer secured pool loans. The few secured loans that are available for a pool come from a handful of local banks around the country.
Pros of secured pool loans:
Lower interest rates:
Secured loans generally come with lower interest rates compared to unsecured loans. The reason: They are backed by collateral, which reduces the risk for the lender.
Higher loan amounts:
Secured loans may offer higher loan amounts compared to unsecured loans, as they are based on home equity.
Longer repayment terms:
Secured loans may have longer repayment terms. This allows you to spread payments over a longer period of time—sometimes up to 20 years. What’s so advantageous here is that this typically ensures lower monthly payments.
Cons of secured pool loans:
Risk of losing collateral:
The main downside of secured loans is simple: If you fail to repay the loan, the lender may lien—or even seize and sell—the collateral. Unfortunately, that could result in losing your home or other assets.
Lengthy approval process:
Secured loans may require a lengthy approval process. Typically, this will include a home appraisal and extensive documentation.
These requirements can delay the loan approval and funding timeline.
Scarcity:
When it comes to a pool or other major home improvement financing, this kind of loan is hard to come by.
Search enough, and you may find a local bank or credit union that offers one.
Fees:
Expect to see additional charges for points, property appraisals, title insurance, title and lien recordings, and related costs.
Unsecured pool loans: loans without collateral
Unsecured pool loans are loans that do not require any collateral. Today, they make up the overwhelming majority of pool loans.
These loans are typically based on creditworthiness—those with credit scores of at least 620.
They may include options such as personal loans or credit cards.
Pros of unsecured pool loans:
No collateral required:
The main advantage of an unsecured loan is that borrowers do not need to pledge any collateral. This means no assets are at risk if you fail to repay.
Faster approval process:
Typically, unsecured loans have a quicker approval process compared to secured loans. They do not require collateral evaluation and other in-depth review of the borrower’s assets.
Flexibility:
Unsecured loans typically offer a wider array of choices in terms of loan amount, repayment terms, and interest rates. This may help make it possible to choose an option that best fits your needs and budget.
Availability:
A number of finance companies offer these loans and do so specifically for pools and other home additions.
Cons of unsecured pool loans:
Higher interest rates:
Unsecured loans generally come with higher interest rates compared to secured loans. The reason is simple: They pose a higher risk for the lender.
However, interest rates are still low. Based on credit, programs are available for rates starting at six percent.
Lower loan amounts:
Unsecured loans may offer lower loan amounts compared to secured loans.
The explanation why is that they are not backed by collateral; instead, they are based solely on the borrower’s creditworthiness and income.
However, when it comes to financing a swimming pool, this “lower” amount rarely matters.
Every year, lenders make tens of thousands of loans that fully fund the price of a new pool or major pool remodel.
So, unless you’re planning an elaborate luxury pool costing upwards of $150,000, this will not affect you.
Broker fees:
Pool loans made through brokers will incur fees on top of the interest you pay the lender.
These middlemen tack on fees that typically run about $1,000 for facilitating loan applications with the lenders who actually supply the funds.
When you apply online with websites offering home improvement loans, expect to pay these fees if your pool loan is funded.
To avoid them, look for pool builders that coordinate loan applications in-house and who will confirm in writing there are no fees or kickbacks for this service.
What sources are available to finance a pool purchase?
If you search for a pool loan on your own, finding the right funding source will take some time and research. And you may strike out.
That’s why most homeowners prefer to shop for a pool contractor that can help them obtain a loan for their project.
Select a builder with a network of pool loan programs and a proven track record of helping match buyers with reputable lenders.
Whether you find pool financing on your own or work with a pool builder that assists, here are seven ways that you may be able to borrow money—secured and unsecured—for a new pool.
1. Finance a swimming pool loan through a bank.
Banks typically offer home-improvement loans to their customers.
It may help to try the bank where you already have a checking or savings account, or a mortgage.
Its loan department may be more willing to approve a pool loan since you’re a current customer and they can see your spending habits and average bank balances, and/or your track record of making mortgage payments.
Before a bank approves you, you will need to complete its standard loan application. Credit experts will look into your income sources, credit history, and total assets.
Many loans from banks are unsecured. When they are, the credit review process may take extra time as bank staff combs through your credit report and other financials to evaluate your creditworthiness.
Common repayment terms run 12 to 144 months. However, with some loans, the interest may climb upward over time; the longer the length of the loan, the more likely higher interest rates kick in.
Each local, regional, or national bank has its own financing program with unique rates and conditions. Some are designed for home improvement.
Familiarize yourself with them before applying for and accepting any pool loans.
2. Use a credit union to borrow funds for a pool.
Unlike banks, credit unions are not-for-profit organizations that are owned by their members.
As a result, they typically put a high emphasis on serving members—their shareholders. They do so with lower fees and interest rates than are common with banks.
If you already belong to a credit union, it may be a great avenue for seeking a pool loan.
A credit union may be more open to working with you for this kind of loan and working out special terms.
Not already a credit union member? It might be worthwhile to join one to access its financing programs and other low-cost banking services.
Joining one is easy if you fall into a category of allowed membership. For example, some limit membership to those in certain occupational groups (e.g., nurse, teacher, military).
However, others have broader membership conditions. Joining some credit unions may be as simple as where you live. All that’s required is that you reside in the county where the institution is located.
3. Pay for all or part of the pool with a credit card.
If you have credit cards with high limits, you may be able to use one or more to charge all or part of your pool purchase.
Some pool builders will accept plastic for all or a portion of the project price.
For example, a builder might take credit card payments for the pool equipment or for the final phase (plaster/interior finish) of construction.
Others might readily swipe a card for the entire contract amount—but only if you pay the merchant service fee (typically three percent) charged by the card processor.
Buying a pool with a credit card is a form of an unsecured loan. While you won’t have to put up your home as collateral, the rates tend to be much higher.
Before going the credit card route, be sure you can repay the borrowed amount. Plot out a repayment plan and budget for yourself.
Paying on time helps avoid getting hit with higher interest rates if the market rate changes (or once the card’s introductory period ends).
Some pool buyers find it helpful to pay for only a portion of the construction with a credit card and use another funding source for the balance.
Again, choose this financing route only after you’re clear about all of the rates and conditions.
4. Finance your backyard resort with a home equity loan.
Your home equity is the difference between the market value of your home and the mortgage balance owed on it.
Your equity builds up over time and represents your share of your home’s ownership.
A home equity loan involves the portion of the home’s value that you own. All of the money you have paid off toward your home is your equity stake, and this share can be useful when it comes to securing pool financing.
Home-equity loans are available from banks, credit unions, and other financial institutions.
You can obtain this kind of loan from the same lender that holds your original mortgage payments. But you can also find one with an entirely new, different lender.
Even if you still owe on your first mortgage, a home equity loan may be within reach.
Do your research for a lender that offers this kind of finance program. In fact, although the interest rates on a home equity loan may be higher than the ones on your original mortgage, they are still relatively low.
Another advantage: The lender’s approval process is relatively quick. When using home equity to finance a home improvement project, you may also be eligible for tax benefits.
5. Draw against a home equity line of credit (HELOC).
Because it’s a secured form of financing, a home equity line of credit offers favorable terms for borrowers.
Often referred to as a HELOC, this loan works much like a credit card. Do take note: HELOCs interest rates are variable, vs. fixed; they can change depending on the market rates.
A bank or other financial institution uses your home’s equity as a line of credit toward building your pool.
The lender sets a limit—similar to the way a credit card company does. You make monthly payments on borrowed money and have a certain time period for doing so.
Some homeowners are in particular luck and already have a HELOC: When they purchased a home or refinanced (sometimes years earlier), the lender may have offered a HELOC and the homeowners took it—even if they did not need it at the time.
In other words, they have a line of credit already in place, to use whenever and however they want.
The most alluring reason to go with a HELOC is that you pay interest on only the amount you borrow.
Unlike a home equity loan—where you receive a lump sum of money from a lender—a HELOC allows you to borrow incrementally; you can take only the exact amount you need at a particular time.
So, instead of paying interest on the entire amount you will need—even if you have not yet used the full available amount—a HELOC charges interest only on the amount used so far.
For a multi-phase construction project like an inground pool, this interest and borrowing structure is particularly helpful.
In particular, gunite pools are built in stages, and contractors require phased payments.
To illustrate, let’s use the example of a $70,000 swimming pool: You draw against your HELOC for the first payment, at excavation. You draw only the amount needed for that specific payment—say, $10,000.
You will not incur interest on the remaining $60,000 until you actually draw it out over three or four increments during a construction period that may last several months or longer.
6. Finance a pool with your savings account.
Your personal saving account can serve as a source for helping acquire a pool loan.
Financing programs known as “savings secured loans,” “share secured loans,” “certified pledge loans,” or “passbook loans” use the cash in a personal savings account as collateral.
Check with your bank or credit union where you have a current savings account. These programs are more common at credit unions.
You will still need to complete loan paperwork, but the process is typically quick and simple. It may not even require a credit check.
When you take out this kind of loan, your lender will move the agreed-to amount from your savings account into a certificate of deposit.
The maximum amount you can borrow may not exceed your account balance, as this is what will serve as your loan collateral.
These loans usually provide excellent interest rates, and you only have to pay interest; there is no required principal reduction.
If your FICO score is on the weaker side, this kind of loan may be more attainable than other kinds of loans.
In addition, these loans usually contain provisions that allow you to renew the terms indefinitely.
7. Borrow against your 401(k) for your outdoor addition.
If you have explored all the other possibilities for pool loans and come up dry, you may be able to turn to your 401(k).
What’s nice about this alternative is that the lender you’ll be paying back is you.
You’ll make monthly or quarterly payments to repay the account plus interest.
The interest rate varies; it’s based on the prime market rate plus—typically—one or two percentage points. To know exactly how much interest you’ll need to pay, be sure to find out the current rate and how to calculate it.
In some cases, borrowing against a retirement account makes sense. Let’s say it’s spring, and you want to begin building a new pool so that it will be ready for summer.
You are expecting some kind of major cash influx that you can use for the pool purchase.
Examples might be a tax refund, real estate sale, CD or money-market maturity, forthcoming inheritance, or quarterly or year-end work bonus.
However, you will not receive it until later in the year or over the next several years.
With the anticipated cash, you know that you will be able to pay back your retirement account in a relatively short period.
Typically, 401(k) loans need to be paid in full within five years of the withdrawal date. If it is not, a 10 percent early withdrawal penalty will be incurred. (Exceptions may apply if you leave your current employer.)
How to qualify for a pool loan
For any pool loan, you’ll have to meet certain eligibility criteria set by lenders. Here are some key factors that may impact qualifications:
Credit score requirements
Credit scores play a significant role in determining eligibility for any kind of loan or line of credit.
Lenders use credit scores to assess creditworthiness and determine the risk of lending someone money.
Higher credit scores generally indicate a lower-risk borrower, while lower credit scores may result in higher interest rates—or loan denial.
However, credit score requirements may vary among lenders. For this reason, it's essential to research and compare different lenders to find one that aligns with your credit score range.
Income and employment considerations
When evaluating your eligibility for a loan, lenders also consider income, discretionary income (i.e. what you left over after taxes and basic living expenses like a mortgage), and employment history.
Stable income and employment history demonstrate an ability to repay the loan. To assess your income stability, lenders may request proof of income, such as pay stubs, tax returns, or employment verification.
If you are self-employed or have other forms of non-W-2 income (e.g., alimony, Airbnb rent), you may need to provide additional documentation, such as recent personal and business tax returns with all schedules.
Loan-to-Value (LTV) ratio
These days, a secured loan for a new pool is a rare animal. But if you find one, the loan-to-value (LTV) ratio is a critical element.
LTV is the ratio of the loan amount to the appraised value of the pool you’re building (or any secured collateral for the loan).
Lenders use the LTV ratio to assess the risk associated with the secured loan. A lower LTV ratio indicates a smaller risk, since the loan amount is a smaller percentage of the collateral value.
Other eligibility criteria
In addition to credit score, income, and LTV ratio, lenders may consider other eligibility criteria when evaluating pool loan applications.
These may include factors such as your debt-to-income ratio (DTI), residency status, and other financial obligations.
Lenders will also examine the credit currently available to you. As odd as it may sound, having ample credit at your fingertips, is viewed as a negative.
For example, say you have six credit cards with little or no balances, as well as a HELOC on your home for $100,000 from which you’ve taken no money.
The lender looks at these as potential obligations that would impact your debt-to-income ratio.
Now, in some cases, a lender will qualify applicants if they close some of those credit card accounts or remove the HELOC.
Start exploring your pool loan options
Building a swimming pool is an investment in your home and lifestyle.
Not everyone has the cash flow to start construction right away, but pool loans or other financing options can help get your pool going without a long wait.
To learn what kind of pool financing you may qualify for, start today by completing a free, no-obligation pool loan pre-approval form.
After your submission is reviewed, a financing specialist will contact you to review opportunities based on your credit and help you fund a new pool.
Not quite ready to seek credit pre-approval?
Here’s an alternative to get started: Estimate monthly payments for your potential investment in a new pool. This free online pool loan calculator will help you test out various combinations of loan terms, interest rates, and total loan amounts.
