How to Finance a Pool

If your ideal outdoor oasis includes a swimming pool, you may be thinking of ways to make it happen. According to HomeGuide, the average cost of an inground pool is $35,000. Most homeowners pay between $28,000 and $55,000, depending on the type, shape, and size of the pool. If you don't have cash available to pay for the pool, you always have the option of financing. Here's how you go about paying for it with a personal loan.

Pool finance options

Options for pool financing include:

• In-house financing: Pool builders often partner with lenders to provide loans. Obtaining one is easy but not necessarily affordable, as it may come with a higher interest rate.
• A personal loan: This can be a fast and affordable way to finance a pool -- if you qualify to borrow enough money at a favorable rate.
• A cash-out refinance loan, home equity loan or line of credit: If you have equity, you can borrow against it. The interest rate should be low, but there's a complex approval process. You also put your house at risk.

Before you decide which method of swimming pool financing is best for you to put in your dream pool, explore all three options.

Best ways to finance a pool

Just as with any home renovation, the best way to finance a pool depends on your situation.

In-house financing

Your first step is to speak with the pool builder. In-house financing from your builder can be the simplest approach to borrowing for a pool because of your builder's existing relationship with the lender. The lender will be familiar with the loan amounts you need since they offer a swimming pool loan as a standard product, and your pool builder may help you with the paperwork.

However, not all pool builders offer in-house financing, and you don't necessarily want to restrict yourself to a pool dealer that provides in-housing pool construction financing. While it is certainly convenient, the interest rate or loan terms may not be as favorable as those offered by other lenders

Personal loans

Personal loans are available from a variety of sources, including from a credit union, or from online lenders, and local or national banks. While some are marketed specifically as "pool loans," or as a "home improvement loan," you don't have to narrow your search to a lending institution with this type of branding.

Any personal loan from any lending institution can be used for virtually any purpose, from financing a large purchase to paying for a pool or a vacation. As long as you have a strong credit score, you should have your choice of loans. It's just a matter of finding one with the interest rate and terms you're looking for. A personal loan is generally an unsecured loan, which means no collateral is required and your assets aren't on the line. However, if you are struggling to get approved for an unsecured loan due to your credit score or other financial factors, it's possible to get a secured loan if you have assets that the lender can take if you fail to pay back the loan.

Personal loans often carry more reasonable rates than credit cards, but higher rates than a home equity loan, home equity line of credit (HELOC), or cash-out refinance loan.

With a personal loan, you have a choice of a fixed-rate or variable-rate loan and a choice of loan terms. Just be aware of the pros and cons of repayment terms. A longer loan term comes with lower monthly payments but higher total costs. And make sure to watch out for hidden fees. For example, you'll likely want to avoid loans with a prepayment penalty.

Many personal loan lenders allow you to qualify for financing entirely online, and you can usually secure a loan quickly. You will have the broadest choice of lenders if you have excellent credit, but there are also some personal loans that cater to borrowers with a lower credit score. Your credit score will determine how much choice of lenders you have, and borrowers with good credit will usually qualify for a lower interest rate.

Personal loans have limitations, though. For one, a lender may not offer a loan large enough to pay for your pool project. And landing the right loan takes work. Different lenders offer different qualifying requirements, interest rates, fees, and loan terms. It's important to shop around to find the best lender.

Home equity loans, home equity lines of credit, or a cash-out refinance

If you owe less than your home is worth and have equity in the house, you could take out a home equity loan, a home equity line of credit (HELOC) or a cash-out refinance loan to finance pool construction. When you do this, you borrow against the value of your house, and the home serves as collateral. This makes it a secured loan.

Typically, the total amount you'll be allowed to borrow -- including existing mortgage debt and your home equity loan -- is around 80% to 85% of the value of your home. So if you have a $300,000 home and a $200,000 mortgage, you'd be able to borrow up to another $40,000 to $55,000. Some lenders may allow a borrower to qualify for a loan worth up to 90% or even 95% of your home's value, but interest rates will typically be higher in those cases.

With a home equity loan, you would know precisely how long you have left to pay on the loan.

A HELOC gives you access to a line of credit and you can borrow up to that amount, drawing from your credit line as needed and paying it back to enable future borrowing. A cash-out refinance involves getting a new loan that's larger than your current mortgage. You'd pay off your existing debt and keep the difference to finance your pool.

There are benefits associated with a home equity loan, HELOC, or cash-out refinance.

The first is that the interest rate will usually be lower than other sources of financing, due to the fact that your home acts as collateral. The second is that the interest on your loan should be tax deductible if you itemize, as long as you're using the funds to improve your primary home and your total mortgage debt doesn't exceed $750,000.

There are also downsides to this financing option. You could face high closing costs. Also, your home is at risk since it serves as collateral. If you miss payments, your lender has a legal right to take possession of your property, sell it, and recoup the loss.

If you've borrowed so much that you have little equity in your home, then you'll have trouble if you need to sell, because you may not be able to get enough in the sale to pay off your loans and real estate costs. In this situation, you'd have to bring cash to the table, or convince your lender to allow a short sale. That damages your credit tremendously. A HELOC also typically has a variable interest rate, which could put you at risk of borrowing costs rising.

Swimming pools don't typically offer a great return on investment (ROI), so there's a good chance you won't get back all the money you put into the pool when you sell your home. This exacerbates the risk. Drawing from the equity in your home could leave you underwater, meaning you owe more on the property than it is worth.

How much should I borrow for a pool?

How much to borrow to finance a swimming pool installation comes down to personal preference. How much debt are you willing to take on?

Since the ROI on a pool isn't very good, you can't necessarily count on getting back what you borrowed if you sell your home. That means your pool isn't really an investment, but rather a luxury item. And borrowing a lot of money for luxury items can compromise other financial goals.

To decide how much to borrow for your pool, you should consider:

• The amount of interest you're willing to pay
• How the monthly payments fit into your budget
• What happens if you lose your job or run into another financial emergency?

You'll want to make sure the total costs of your loan aren't unreasonable, given your income and the value of your home (it probably wouldn't make sense to put a $100,000 pool in a $200,000 home, for example), and that your monthly payments fit easily into your budget.

If the costs of a pool are so high that you'll struggle to make your payments or have to spend a fortune in interest costs, opt for a less expensive pool or save more to put down, so you can borrow less.

Ways to save money on a pool loan

If you are borrowing for a pool, aim to make sure your loan is as affordable as possible. To do that:

• Borrow the minimum you need to finance your pool. If you can save some money to pay toward it, or opt for a cheaper pool to lower your borrowing costs, your total interest expense and monthly payment will be lower.
• Borrow for the shortest time possible. A longer repayment timeline gives you smaller monthly payments, but your loan costs more in the long run.
• Shop around. Make sure to explore all your pool financing options so you can get the lowest rate and best terms.

Is financing a pool right for me?

If you don't want to pay cash for your pool, financing with a personal loan may be a good idea, but only if you can easily afford the monthly payments, even if you lose your job, get sick, or face another emergency.

Remember, a pool isn't a necessity or an investment, and borrowing for luxury items often isn't the best idea, since you're paying interest for something you don't really need. Many people borrow for things they want, from swimming pools to vacations, but make sure you think through the tradeoffs and the opportunity cost of securing loan funding before you proceed.