Can You Include a Pool in Your Construction Loan?

A construction loan provides short-term financing for building a new home, differing from a traditional mortgage which funds an existing property purchase. These loans have terms of one year or less, during which home construction must be completed. Many planning to build wonder if a swimming pool’s cost can be included in this initial financing. Including a pool introduces specific considerations for lenders and affects the overall loan structure and approval process.

Key Considerations for Inclusion

Lenders evaluate several factors when considering a pool as part of a construction loan. Not all lenders offer financing that includes a pool, and those that do may have strict criteria.

The pool must add value to the property to justify its inclusion in the loan amount. Appraisers assess the pool’s contribution to the home’s overall market value. An overly expensive pool relative to the home’s value or neighborhood norms could concern lenders, as it might not retain its full cost in appraisal value. In warmer climates, a well-designed pool can boost property value, making it a desirable feature for future buyers. In colder climates, however, a pool may be a liability due to maintenance and safety concerns.

The pool’s cost directly impacts the loan-to-value (LTV) ratio. Lenders are cautious about over-financing, requiring an LTV of 80% or less of the completed value, meaning borrowers need a down payment of 20% to 30% or more. If the pool’s cost exceeds its appraised value contribution, the borrower might need to cover the difference with additional cash to maintain the required LTV.

Lenders are more likely to approve in-ground, permanent structures rather than temporary or above-ground options. The complexity and cost of the pool design influence approval, as lenders prefer features integral to the home’s long-term value and marketability. Borrower financial standing is examined when adding a significant cost like a pool. Lenders review credit scores and debt-to-income ratios. A strong financial profile helps reassure lenders about the borrower’s ability to complete the project and repay the loan.

Structuring Your Construction Loan

Preparing for a construction loan that includes a pool requires documentation and planning. Comprehensive architectural plans for both the home and specifications for the pool are necessary. These plans should include dimensions, materials, equipment, and the proposed location of the pool within the property.

Obtaining itemized bids from qualified pool contractors is an important step. These bids should be separate from the home builder’s bid but part of the overall project cost. A clear contract outlining the pool’s scope, timeline, and payment schedule is needed for lender approval. Lenders prefer working with approved, experienced contractors.

Creating an itemized budget is important for lender approval. This budget must detail the pool’s expenses, including excavation, installation, decking, landscaping around the pool, fencing, equipment, and permits. The budget should also account for potential contingencies, as projects can encounter unforeseen challenges.

During the loan application process, the pool should be presented as part of the home construction project. All documentation, including plans, bids, and the detailed budget, must be submitted as a complete package.

The lender’s underwriting team will review all submitted documents. This ensures the entire project, including the pool, is feasible, adds value, and aligns with their lending criteria. Underwriters analyze the project’s scope, timeline, budget, potential risks, borrower’s financial capacity, and contractor’s qualifications.

Managing Funds and Loan Completion

Once a construction loan including a pool is approved, funds are released in stages, or “draws,” as construction progresses. These draws are tied to specific milestones in the building process, with disbursements for pool milestones like excavation, shell installation, and finishing work. Lenders require inspections at each stage to verify work aligns with approved plans before releasing subsequent funds.

Lender-required inspections ensure pool construction adheres to approved plans and local building codes, confirming structural integrity and compliance. Municipal inspections are also necessary for safety and code adherence throughout the pool’s construction.

Managing changes to pool plans or budget after loan approval involves change orders. These modifications, arising from design adjustments or unforeseen site conditions, require lender approval and can impact the overall loan amount or timeline. Document all change orders, including descriptions, cost estimates, and approval signatures, for transparency and to avoid financial discrepancies.

Upon completion of both the home and the pool, a final appraisal confirms the property’s completed value. This appraisal verifies the project aligns with the initial valuation and meets lender standards. The construction loan then converts into a permanent mortgage. This conversion streamlines the financing process, allowing the borrower to transition from interest-only payments during construction to principal and interest payments on the long-term mortgage.