There’s nothing better than stepping out your back door on a hot summer day and jumping in your own swimming pool.

But be careful when looking to buy or refinance a home with a pool. That swimming pool can cause delays in the mortgage process, or drown your loan application altogether.

“If there’s a swimming pool, it either has to be in working order, or it has to be removed, filled in – basically not exist anymore,” says Karen Stubrud, loan officer and certified mortgage planner at Mortgage Advisory Group in Marysville, Wash.

Stubrud worked with a client who wanted a reverse mortgage, but had an empty, aging swimming pool on the property.  Reverse mortgages follow FHA guidelines, which are particular about swimming pools. “They don’t want it to be a health hazard or a safety hazard that there’s a big gaping hole in the ground.”

So what did the client do? “How they handled it was that they filled it in,” says Stubrud. They broke apart the edges of the pool, threw the pieces in the hole, and completely covered the entire area with dirt. The pool ceased to exist.

There were no other options for this aging homeowner who didn’t have the money to get the pool in working order. But Stubrud says the client did bring up an alternative idea. “They actually wanted to keep it and they were going have this subterranean greenhouse. I said, ‘Nope, that’s not going to work.’”

The client didn’t get their greenhouse, but they did pass the all-or-nothing test when it comes to the pool.

Why Do Lenders Care about the Pool?

Many homeowners believe that what’s on your property is your business. While that’s partly true, you invite scrutiny to almost every inch of a home when you decide to finance it with the lender’s money. It’s true for FHA loans as well as any other loan type.

It boils down to safety. Lenders don’t want their money going to finance an unsafe property. A pool that is a falling danger or is a breeding ground for bacteria is a hazard to the health of the occupants. Not to mention it opens the homeowner up to lawsuits.

The same standards would apply to things like a missing stairs outside the back door, missing handrails, or exposed lead-based paint. A lender needs the home to be a safe, long-term residence before they lend on it.

What if I want to Repair the Pool?

Repairing the swimming pool to get it into working order will allow the loan process to continue.

When buying a home, this could be a tricky situation. It’s risky to use your own funds to make repairs on a home that’s not yours yet – especially pool repairs which can range from a few hundred to a few thousand dollars. But don’t expect the seller to agree to pay for repairs either.

There may be another way to make repairs, however. “The borrower will need to obtain a bid for the necessary repairs,” says Sarah Bohan, VP of Corporate Relations at MSU Federal Credit Union. “If the repairs are scheduled to take place after the closing, the lender will typically request to hold 1.5 times the bid amount in escrow.”

In this way, repairs can be made after closing with the money you deposit up front. You receive back any money left over after everything’s done.

But don’t count on this solution, says Bohan. “Many lenders are not able to allow for repairs after the mortgage closes because they sell their loans on the secondary market and need to deliver the loan within a set timeframe.”

Make sure your lender allows for repairs after closing before you agree to buy a home with a decrepit pool.

USDA Loans and Swimming Pools

All loan types follow the same general rule: the swimming pool must meet safety standards. But one loan type, the USDA Rural Development home loan, goes one step further.

“Rural Development is a 100% financing program – meaning the borrower is not required to put money down to purchase the home,” says Bohan. “However, the 100% is based on the value of the home without the pool.”

In some cases, a swimming pool may not add value to the home, but that has to be determined by the appraiser. Any value that the pool does add may not be included in the USDA loan amount. So the buyer would have to pay for the pool’s entire value in cash.

Un-Agreeing to Buy a Home with a Damaged Pool

Many times a homebuyer agrees to buy a home, but upon a home inspection, it’s determined that an aspect of the home is unsatisfactory – in this case, the pool.

Luckily, you can back out of the agreement based on the home inspection contingency, a part of your purchase contract made for such occasions.

You can refuse to buy the home unless repairs are made at the seller’s expense. If that doesn’t happen, you get your earnest money back.

The lender’s denial letter can also help you get out of a purchase agreement, says Bohan, “Typically, the buyer has provided the seller with an earnest money deposit. With a lender denial letter, this can usually be refunded.” But consult your real estate agent about the part of your purchase contract called the financing contingency. Bohan says, “It does depend on the terms outlined within the purchase agreement.”

They key is to tread lightly when looking at homes with in-ground pools. Don’t “jump in” to any decisions – pun intended. Consult your real estate agent and loan officer before considering a home with a sub-par pool.