The pool industry has completely changed since the 2008 housing crash. Before then, pool loans were most commonly secured with second or third mortgages on the pool owner’s home. In late 2007, when these home values peaked and began their now historic decline, many pool buyers were also recent home buyers; meaning their pool purchase was made in the first two to three years of their initial mortgage investment.
As housing values dropped, foreclosures increased and investments in second and third high loan-to-value mortgages became toxic. Almost all lenders were forced to step back. In home improvement lending circles, pools were then considered a notoriously bad investment. Pool construction fell along with other new construction projects and home improvement store sales.
As we are all aware, as those real estate numbers tumbled and job losses mounted, countless homeowners found themselves underwater. Many walked away from their homes and their loans.
While long a residential mainstay because of their recreational and fitness uses, pools have traditionally added significant appeal to a home and its resale valuation. But the pallor cast on the pool financing industry and the reason lenders were (and why some still are feeling the effects of these losses) was never because of the pool financing itself, but was instead a direct result of homeowners who abandoned their upside-down mortgages.
The Tide Turns
Until the housing crash, pool financing was primarily a mortgage-secured product funded by national banks offering low rates and good terms that secured the loans with a second or third deed of trust. The toughest years were 2008 through 2010, when investors were just not willing to consider pool financing or most second mortgages. There were some regional banks that stuck with it, but not to the degree that would produce those previously reaped volumes.
In 2012, with the housing market seeing some legitimate signs of stabilization and lenders becoming more aware of the strength of the pool financing market; providers are more consistently offering pool financing. The rates may be a little higher, but they are based on the credit worthiness of the actual borrower and not on the property’s real estate assessment.
A few years ago, unsecured pool building loans were almost unheard of, but are now the basis for much of the pool construction industry’s growth. The rates on those loans are similar to those for many credit cards.
For those homeowners willing and able to borrow to finance a pool, the ideal loan comes from a company with experience lending in the pool industry. Loans then can be tailored to the unique demands of pool builders.
One way loans are tailored is to have them track the five phases of pool construction: excavation, rebar, gunite, tile and decking, and equipment and plaster. In this system, the pool builder is paid when each of those phases is completed. The builder gets the final payment when the pool is filled and the electrical system is activated. With this method, the contractor is paid directly and is protected from non-payment by a customer. In addition, the customer is assured that the contractor has incentive to complete the job.
Unsecured loans tend to be made for no more than $30,000. In most cases this covers the cost of buying a pool. For higher-end projects we have found that the $30,000 unsecured loan works very well as most borrowers are contributing sizeable down payments to accommodate the more-expensive price tag.
Formerly, unsecured pool loans were completed by giving a check for the total amount of the pool to the homeowner, who would then pay the builder. This is still done in cases where a customer gets a regular unsecured loan, rather than one tailored for the pool industry. Fortunately now we see the opportunity to protect the builder by funding to them directly.
In general, pool loans have been good risks for lenders. Pool owners tend to make payments consistently and seldom have remorse over the purchase.
There are still home equity loans for pools available in markets, such as Texas, where there is lower unemployment than in the rest of the country and home prices are rising. We are now seeing lenders also consider adding back value for the pool project thus making qualifying easier and in turn these lenders, based on equity, are willing to make loans as high as $75,000.
This year alone we have processed more than $100 million in pool loans and are witnessing a return of investors interested in these loans as sound investments.
