Mortgage originators who are looking for niche products that can boost sales volume in a rising interest rate environment may want to consider dipping a toe in the swimming pool renovation finance market — not through personal loans but by using Fannie Mae’s HomeStyle or Freddie Mac’s CHOICERenovation programs. Both products allow homeowners to update existing in-ground swimming pools, or combine pool construction with a home-purchase or refinance loan.
Why would a homeowner prefer a home renovation loan over traditional pool financing? First, conventional home loan rates are typically more favorable than personal loans. Second, to get the lowest rates on a traditional swimming pool loan, a borrower generally must opt for a short term — for example, three years, which may result in higher payments.
By contrast, the HomeStyle and CHOICERenovation mortgage programs offer up to 30-year terms, which deliver comparatively affordable payment options versus pool loans, second mortgages or home equity lines of credit. Renovation loans can be attractive to swimming pool installation companies that seek additional sources of funding for their products. Homebuilders benefit, too, by giving their clients more options to consider, choices that may result in lower payments for more expensive pool installations.
The changing American lifestyle now includes a lot more time spent at home. This may involve remote work, small businesses and freelancers, or even remote schooling. All this time spent at home has led to an increase in both interior and exterior remodeling projects, including swimming pools and outdoor kitchens.
Originators can tap into this market and use it to build sales volume by serving clients who want to expand their livable outdoors space by adding a new pool or renovating an existing one. Renovation home loans also appeal to equity-rich homeowners who have been unable to move up due to the limited supply of homes for sale. Instead of tapping their equity to move into a different home, they can turn their existing house into the one of their dreams by adding a pool, spa or other hardscaping, thus avoiding competition for inventory that sometimes goes for thousands above the asking price.
While renovation loans may be appealing to mortgage originators who are looking for products to replace rate-and-term refinances, some shy away from this sector because they needlessly worry about the difficulty of processing renovation loans. To ease the learning curve, seek out a correspondent lending partner that offers either delegated or nondelegated opportunities along with draw management.
Originators also may watch for “pool package” programs with reduced documentation, which are offered by some lenders via the Homestyle or CHOICERenovation programs. In exchange for reduced documentation, the loan funds only the pool installation (including any pool decking, fencing or netting immediately around the pool).
The biggest benefit of this option is that the homeowner often doesn’t have to work with a renovation consultant. Instead, a qualified pool installer can conduct the planning and work. This makes for a more expeditious process and saves the borrower money.
Under some loan programs, as long as the installer fully describes the work — including itemizing permits — they aren’t required to separate labor and material costs. A licensed appraiser provides a 1004D update or completion report once the swimming pool is finished in advance of the holdback funds being released.
While homeowners may have a great deal of equity, they may not have the cash available to fund a new swimming pool. The cost of living is going up at a much greater rate than income. Families are having to spend their income on higher-priced food, gas, sundry items, etc.
Having a backyard pool makes sense to a lot of people. It gives families and friends a place to gather privately at a time when some no longer wish to swim at community pools or private clubs. After spending so much time at home during the COVID-19 pandemic, homeowners are yearning for the fresh air, sunshine and fun that a backyard pool offers.
As people question how to make the most of their life in the current environment, a more enjoyable home (including a swimming pool in the backyard) will be the answer for some. Having a “pool package” in your loan product lineup could be a win-win for your company and your clients. ●