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Backyard pools are the perfect reprieve in summer and a great way to spend time with family and friends. If you’re building a new home, you may be wondering if it’s worth having a pool, or maybe whether you should install it now or wait until after you’ve gotten the big project of building a house out of the way. We think the best time to put a pool in is when you are building your house. Read on to find out why.
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Installing a pool can be the ultimate backyard upgrade. A refreshing oasis that provides hours of recreation for your family and increases the value of your home. But pools don’t come cheap. The national average cost to install an inground pool is around $50,000. Not many people have that kind of money laying around.
This leads to the question – can you include a pool in your construction loan?
The short answer is yes, You can finance the construction of a new pool as part of a construction loan This option allows you to roll the pool costs into your overall home building loan
In this article we’ll explore
- What is a construction loan?
- How construction loans work
- Using a construction loan to build a custom home
- Financing a pool with a construction loan
- Pros and cons of including a pool
- Alternative financing options
- Steps to get financing
Let’s dive in!
What is a Construction Loan?
A construction loan, also called a builder loan, is a short-term financing option meant solely for building a home. These loans provide funds in phases as construction progresses.
Here are some key things to know about construction loans:
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Short-Term Loan: The loan term is usually around 6-12 months to cover the building timeline. Once construction completes, you’ll replace it with permanent financing like a conventional mortgage.
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Phased Funding: The lender disburses money incrementally as certain milestones are met. This ensures the funds are used for construction costs.
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Variable Interest Rates: Construction loans often have variable rates that fluctuate with market conditions. The rate is set as a ‘spread’ above an index like Prime or LIBOR.
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Interest-Only Payments: During the build, you only pay interest on the disbursed funds. Principal payments don’t start until you get permanent financing.
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Closing Costs: Expect to pay closing costs around 2-5% of the total loan amount. Costs include origination fees, appraisal, and inspections.
Construction loans provide an affordable financing option for custom home builds. But they can also be used to finance major renovations like adding a pool.
How Do Construction Loans Work?
Construction loans provide access to cash as it’s needed during different phases of the homebuilding process. Here’s a breakdown of the typical construction loan stages:
Loan Application – You’ll submit detailed plans, budgets, permits, and other documents when applying for the construction loan. The lender will review your plans, specifications, and financials before approving the loan.
Loan Closing – After approval, you’ll sign loan documents and the lender will open an account. You’ll need to pay closing costs, which may be rolled into the loan. The closing stage may require a land survey and appraisals.
Initial Disbursement – The first loan disbursement covers project start-up costs like permits, surveys, contractor fees, and excavation. The amount is usually 10-15% of the total loan.
Draw Schedule – The construction draw schedule outlines the subsequent disbursements. The schedule links payouts to completion percentages for major components like the foundation, framing, roofing, plumbing, and more.
Interest-Only Payments – Each month, you’ll pay interest-only on the amount disbursed so far. Payments are due on the 1st of the month. The interest rate may adjust monthly.
Final Disbursement – The final payout comes after the local building authority completes the final inspection and issues an occupancy certificate. Leftover funds pay for final finishes and appliances.
Permanent Financing – You’ll need to replace the construction loan with a traditional mortgage once the home is finished. This longer-term loan has principal and interest payments.
Now that we’ve covered the basics, let’s look at how these loans work for building a custom home.
Using a Construction Loan to Build a Custom Home
Construction loans give you flexibility to build a home exactly how you want. You provide the lender with your custom plans and specs upfront.
Here are some advantages of using a construction loan for a custom build:
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Customized Floor Plan – Create a layout tailored to your needs with a home office, large kitchen, multi-generational suite, open concept, and more.
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High-End Finishes – Splurge on luxury materials and features like granite counters, hardwood floors, top-of-the-line appliances, media rooms, and timber framing.
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Energy Efficient Design – Build an energy efficient home with double pane windows, extra insulation, LED lighting, tankless water heater, solar panels, and other green features.
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Property Site – Choose the perfect lot to build your dream home whether it’s in the suburbs, a rural area, or the city.
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Cost Efficiencies – Building new can be more cost effective than buying an equivalent existing home.
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Equity & Value – Custom building allows you to create immediate home equity and potentially boost long-term property value.
Construction loans make it possible to build the custom home you’ve always wanted. Now let’s look at including a pool in the construction financing.
Financing a Pool With a Construction Loan
Adding an inground pool can increase the value of your property by 7% or more. But with an average price of $50,000, how do you finance it?
The good news is you can include a pool in your home construction loan. Simply provide the lender with pool plans and projected costs. The pool expenses will be included in the total loan amount.
Here’s an overview of how pool financing works with a construction loan:
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Have a pool contractor draw up plans and provide a detailed estimate for all pool components – the shell, decking, fencing, excavation work, utilities, landscaping, lighting, chemicals, and more.
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Submit the pool plans and budget to the lender along with your house plans. The total loan amount will cover house construction costs plus the pool.
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The first construction draw can include initial pool expenses like permits and excavation. The pool contractor will be paid incrementally as the project hits milestones.
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Make interest-only payments on the disbursed pool funds until the project is complete.
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After passing inspections, the final loan disbursement will pay the pool contractor and cover any remaining pool equipment and supplies.
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When the home and pool are finished, get permanent financing to pay off the construction loan. Make principal and interest payments to pay down the total amount over 15-30 years.
Bundling pool installation with home building keeps financing simple. But before jumping in, weigh the advantages and disadvantages.
Pros and Cons of Including a Pool in a Construction Loan
Pros
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Consolidated financing – A single construction loan for the home and pool simplifies the process.
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Only one closing – You’ll pay closing costs once versus separate loans. May be less expensive.
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Single interest rate – A combined loan means the home and pool qualify for the same competitive interest rate.
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Cost efficiencies – Building concurrently leads to potential cost savings on excavation and site prep.
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Equity growth – A new home with a pool holds long-term value and can accelerate equity gain.
Cons
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Larger loan amount – Borrowing for the pool increases your total debt. Make sure your budget accommodates the higher mortgage payment.
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Short loan term – The construction phase is temporary. You’ll need to secure permanent financing once the project completes.
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Variable rate – The interest rate fluctuates during the build. It may be higher once you switch to a fixed-rate permanent mortgage.
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Single lender – You can only use one lender for the construction loan, limiting the ability to shop for the best pool financing.
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Delayed financing – If the home construction hits delays, the pool financing may be impacted.
If your budget allows, rolling the pool into the home construction loan can be the way to go. But also consider alternative financing options.
Alternative Financing Options for Swimming Pools
While convenient, a construction loan isn’t your only choice for financing a pool. Here are some other ways to pay for pool installation or remodeling:
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Cash-Out Mortgage Refinance – If you have sufficient home equity, you may be able to refinance and take cash out to pay for a new pool.
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Home Equity Loan – Tap your equity with a second mortgage to get funds for the pool in a lump sum. Rates are often lower than personal loans.
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Home Equity Line of Credit (HELOC) – A HELOC functions like a credit card, allowing you to draw just what you need for the pool project and make monthly payments on the balance.
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Personal Loan – Unsecured personal loans with fixed rates and terms up to 5-7 years are an option. Rates are usually higher than home equity loans.
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Credit Cards – Some homeowners use low or zero interest credit cards to finance pools
MORE FLEXIBILITY WITH POOL DESIGN
If you build your pool while your house is being built, you have so much more control over making sure the two fit together seamlessly on your property. You can design the porch of the house to fit right in with your pool deck and plan for the back side of the house to mesh well with your pool screen. You can also customize the landscaping in your backyard to beautifully frame the pool. If you wait until later, you’ll be ripping up landscaping and sod you paid to put in when your house was built, and you’ll have to plan the pool around the house rather than with it. It’s not impossible to do, but it certainly makes for a more seamless process when the two are done together.
Not only does it make the design process easier, but it makes the installation of the pool easier as well. Pool construction usually begins about 2/3rds of the way into home construction, and at that point, your driveway and yard haven’t been filled in yet. When you install a pool at this point in your build, you avoid damage that can happen to your yard and driveway from cement trucks and other construction equipment as they access your backyard for the pool installation. You also won’t have to worry about moving any yard fixtures or kids toys or finding a way for the machines to get through the backyard fence. It truly simplifies the whole process and can save you money when you avoid yard damage and other fees that come with difficult backyard access.
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RAISES THE VALUE OF YOUR HOUSE
Let’s be honest – if you live in Florida, a pool is a welcome commodity. The sweltering summer heat can be tough to take, and there’s nothing like a refreshing dip in the pool to cool off and relax. Many Florida homes have swimming pools for this reason, and these backyard oases are considered much more standard to a single family home in the Sunshine State than say, homes in the midwest. The maintenance is easier in a state where a pool is relevant year-round. Many Florida home buyers are looking for a house with a pool, so when it comes time to sell your house, your home will be more appealing on the market.
Building a swimming pool is no small investment. You may think you want to put off the cost until after you’ve gotten the initial cost of your home build out of the way, but unless you plan on paying in cash, you’re going to have to finance the pool after already financing your house. This most likely means you’ll be taking out a second home equity loan. If you build the pool while you’re building your house though, you can roll the two costs together and include the cost of the pool in your mortgage.
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Use A Construction Loan To Build A House?
FAQ
Can a pool be added to a mortgage?
Can you build a house and pool at the same time?
Do swimming pools add value to your home?
Can you use home equity for a construction loan?
Do you need a pool loan to build a backyard?
Installing a pool typically comes with a large construction price tag, and you may need financing to help cover the costs. If you can afford to meet monthly payments, a pool loan is a handy way to build the backyard of your dreams. You can use pool loans to cover all of your pool construction costs.
Can you finance a swimming pool without a personal loan?
Still, if you’re not able to qualify for a personal loan or financing using your home’s equity, this may be the only option for financing your swimming pool. Takeaway: Financing swimming pool costs directly through your pool dealer can be a convenient but higher-cost option.
Can a home equity loan finance a swimming pool?
Of the 130 million households, an estimated 8% of homes have a swimming pool. A home equity loan is an option for financing your pool. This can be best for those who have significant equity built up in their homes. With a home equity loan, you borrow a lump sum based on the value of your home, minus the amount owed on the mortgage.
Can you get a pool loan with a contractor?
Contractor financing can be a convenient option since the contractor manages the application process and the loan terms, but homeowners should be cautious as there is the potential for conflicts of interest. To qualify for a pool loan you typically need a credit score of 650-680.