How to Finance a New Pool With a New Mortgage

During hot summer months, many homeowners in the U.S. look at options for installing swimming pools. Typically, pools cost between $10,000 and $50,000, and many people use home loans to pay for the installations. There are several loan options for people intending to use home equity to finance a pool. A conventional mortgage refinance pays off an existing mortgage and replaces it with a new loan that includes the cost of the pool. Mortgage refinances involve significant closing costs and most people find it less expensive to take out a second loan to finance the pool. Banks offer home equity lines and home equity loans. Home equity lines have variable rates which leave homeowners vulnerable to interest rate increases. Home equity loans have fixed rate terms of 10 or 20 years and interest rates comparable with conventional mortgage rates. Most lenders recommend that people use home equity loans to finance major home improvement projects.

• 1

  Meet with a loan officer at your local bank. Provide the loan officer with your homeowners insurance, warranty deed, two years of tax returns and last two pay slips. Give the banker your Social Security number and provide your home address. The banker uses your SSN to check your credit report. The bank use an electronic appraisal to determine a value for your home. The electronic value does not necessarily reflect the true value of the home but banks use electronic values to price loans during the pre-qualification process. The banker uses the value and your debt-to-income ratio to determine how much you can borrow against the home. Generally, you can borrow up to 80 percent of the value of your home between a first and second mortgage.

• 2

  Contact a builder or contractor who specializes in swimming pool installation. Ask the contractor to provide you with a quote for a pool installation. If the quote exceeds the amount the bank pre-qualified you for, ask the builder to give you a quote for a smaller pool. Agree on a pool and a price. Keep a copy of the estimate.

• 3

  Return to the bank. Ask the banker to complete the loan application using the pool estimate as the basis of the loan amount. You should take out slightly more than the projected cost of the pool to cover yourself in the event that construction costs exceed the estimate. The banker orders a full appraisal of your home. If the full appraisal matches or exceeds the amount of the electronic appraisal, you can complete the loan. If the full appraisal shows that your home does not have sufficient equity to take out the loan, you may need to re-negotiate with the builder, use money from credit cards or abandon the project.