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Old 08-24-2009
Jcody2121
 
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Finance a boat

I am interested in any comments on how to best finance a large purchase 200k - 300k cruising boat. My wife and I own our house that is worth about $250k, we have no debt and have money to put down. We will move on the boat, rent our house, work a few months to save money, then sail for a few months. We are both in the IT computer field and work as consultants / contractors so this type of work is relatively easy to find. My question revolve around what to expect to have to put down on the boat? Would it be better to do an equity loan since we own our home. What other ideas are there for getting a better interest rate etc. How long can you typically get a boat loan for?

Thanks for any help.
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Old 08-24-2009
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How much equity do you have in the house? People tend to use terms like "we own our home" in place of "we are buying our home from the bank over time". Obviously if you try to go the second mortgage route and have little to no equity will be buying little to no boat.
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Old 08-24-2009
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To use the house purchase metaphor, would you mortgage a home purchase if you knew definitely it is a depreciating asset (i.e., a boat)?

When you actually look at how much a boat would cost, including interest over the term of a loan compared with the boat's depreciated value over that equivalent period, how do you judge that as a use of money?
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Old 08-24-2009
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Jcody, even if you can put $250K cash down on a $250K boat, that is only the beginning. Your boat will cost you money each month you own it whether you sail it or not.

Recommend you look up literature from Beth Leonard and Lin & Larry Pardey. They have written extensively on the cost of operating boats of 30', 40', 50' and more. This will help you decide what you can afford to buy and what comes after. Good luck.
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Old 08-24-2009
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Morning jcody,
Drawing on my experience as a loan rep at a boat finance company(indirect lender) when marine loans were almost as easy to get as home mortgages. Well, not quite, but if your equity in the boat to be purchased, i.e. downpayment, ranged 15% or more, had verifiable income, work history AND a good credit score, approval was given at a market rate. We made the loans as they should be made; the right way based on traditional lending principles. Now, after the aforesaid mortgage loan debacle continues to affect the lending market, boat loans have all but dried up as the banks have overreacted and pulled out of the business thinking boat loans represented high risk while the opposite is true. They threw the baby out with the bath water type thing. The finance companies now have a very reduced market to place the loans with bank funding sources. That is indirect lending. It's still out there as your source of financing. You can also try to go the direct route with banks that choose to stay in the business. I'll recommend some names.
This is what you're going to be facing. You are now seeking to borrow in arguably the toughest boat loan market of recent history. Banks that are still lending are more stringent in their requirements. I do caution you, however, to NOT mortgage your house to buy the boat. That is equivalent to "betting the ranch." You just shouldn't do it. Let the boat be completely separate. If you are planning on living on the boat, you might want to just swallow the anchor and sell the house outright to increase the downpayment on the boat. In this market, even the good guys out there will be looking for that to compensate for the worldwide credit mess. There are still banks in the market because they are experienced lenders and know that marine loans rank far below other loan products in terms of loss experience. Made right, they are a good asset for them. They were never a large part of a banks portfolio, but were proven performers. Boat loan defaults were less than 1% of outstandings while auto loans were always double digits. I recommend you talk to a marine finance expert to discuss your options, but don't merely call the local bank. You will find that SunTrust, Essex Credit, Schwaun Funding, First Commercial Credit Corp, to name a few, are willing to advise you. They will help with different scenarios that they know will work in this market. The Marine Bankers Association can also provide ,more names of additional marine bankers you might call to help with your questions. This is specialized lending so use those who continue to be in the business. Fair winds.
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Old 08-26-2009
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Quote:
Originally Posted by k1vsk View Post
To use the house purchase metaphor, would you mortgage a home purchase if you knew definitely it is a depreciating asset (i.e., a boat)?

When you actually look at how much a boat would cost, including interest over the term of a loan compared with the boat's depreciated value over that equivalent period, how do you judge that as a use of money?
This is done everyday on a car lot. Granted it is a lot less money, but the same economic theory. Why not get a line of credit off the home or a home equity loan (2 different things) and use that for the purchase of the boat. The house will proabably increase at a normal rate of 2%. But who know these days? The bad news is that if you loose your job and default on the loan, they take your house and your boat. I don't like lines of credit or home equity loans and would never do this, but they have their uses.
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Old 08-26-2009
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Quote:
Originally Posted by trailblazer1229 View Post
This is done everyday on a car lot. Granted it is a lot less money, but the same economic theory. Why not get a line of credit off the home or a home equity loan (2 different things) and use that for the purchase of the boat. The house will proabably increase at a normal rate of 2%. But who know these days? The bad news is that if you loose your job and default on the loan, they take your house and your boat. I don't like lines of credit or home equity loans and would never do this, but they have their uses.
There are a couple of flaws this this analogy - first, most people NEED a car if, for no other reason, to get to work. In and of itself, that rationalizes the need to obtain a car loan in many cases, regardless of the equity used as collateral.

The other flaw here is that using home equity to purchase a depreciating asset (boat) serves to effectively lessen the equity most people have in their home.

Any way one choose to rationalize it, buying a depreciating asset is not a good use of money - yes, we do it all the time for necessary things like a car. And clearly we all make the same decision when buying a boat which depreciates regardless of how much cash is involved.

The point I'm not doing a good job of making apparently is that one only serves to exacerbate the real cost of a boat by incurring finance charges on something no one actually NEEDs. One could conclude that is a a poor use of money most people otherwise value considerably.

Your money, your choice but do so objectively, not with rationalizations

Last edited by k1vsk; 08-26-2009 at 01:01 PM.
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Old 08-26-2009
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First to answer a few of your questions or respond to comments. Sailmachine - when I say "we own our home" I mean "We own our home out right, free and clear" No more mortgage payments, paid it completely off in 16 years. Saildork, thanks for the advice on the cost of owning a boat, I have actually owned a 30' boat before and I am somewhat familiar with the operational cost of a boat. To reiterate, our plan is to rent the house (Netting "some" money to pay the boat loan, since the house is paid for). work for a year or so while we live on the boat with no other debts except normal living expenses, this should allow us to sock a good chunck of cash away to go sailing - when the money gets thin we come back and work some more.
Jameskok - GREAT info - thanks a ton, this is what I was looking for, options, advice, knowledge of the boat mortgage market. I have considered selling the house and all belongings and buying the boat outright. However there are pros and cons to every option and in some ways we like the option of having a paid for home to come back to. The last thing to consider is this is our dream, what we have been working for and plenty of people have done it and made it work on a whole lot less. A boat is never an investment, we fully understand that. Thanks again for all the great info from each of you! There is clearly a lot of knowledgeable people to offer up ideas on this forumn.
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Old 08-26-2009
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You will need to do your own research, but as I recall, boat loans have a much more conservative lending criteria and I recall someone telling me they want to see at least 20% down which in your case would be $50k. The money is out there and I’ve been told the rates are “reasonable”. They are looking to minimize their risk by requiring much larger down payments and a sterling credit rating
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Old 08-26-2009
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Quote:
Originally Posted by JamesSkok View Post
Morning jcody,
Drawing on my experience as a loan rep at a boat finance company(indirect lender) when marine loans were almost as easy to get as home mortgages. Well, not quite, but if your equity in the boat to be purchased, i.e. downpayment, ranged 15% or more, had verifiable income, work history AND a good credit score, approval was given at a market rate. We made the loans as they should be made; the right way based on traditional lending principles. Now, after the aforesaid mortgage loan debacle continues to affect the lending market, boat loans have all but dried up as the banks have overreacted and pulled out of the business thinking boat loans represented high risk while the opposite is true. They threw the baby out with the bath water type thing. The finance companies now have a very reduced market to place the loans with bank funding sources. That is indirect lending. It's still out there as your source of financing. You can also try to go the direct route with banks that choose to stay in the business. I'll recommend some names.
This is what you're going to be facing. You are now seeking to borrow in arguably the toughest boat loan market of recent history. Banks that are still lending are more stringent in their requirements. I do caution you, however, to NOT mortgage your house to buy the boat. That is equivalent to "betting the ranch." You just shouldn't do it. Let the boat be completely separate. If you are planning on living on the boat, you might want to just swallow the anchor and sell the house outright to increase the downpayment on the boat. In this market, even the good guys out there will be looking for that to compensate for the worldwide credit mess. There are still banks in the market because they are experienced lenders and know that marine loans rank far below other loan products in terms of loss experience. Made right, they are a good asset for them. They were never a large part of a banks portfolio, but were proven performers. Boat loan defaults were less than 1% of outstandings while auto loans were always double digits. I recommend you talk to a marine finance expert to discuss your options, but don't merely call the local bank. You will find that SunTrust, Essex Credit, Schwaun Funding, First Commercial Credit Corp, to name a few, are willing to advise you. They will help with different scenarios that they know will work in this market. The Marine Bankers Association can also provide ,more names of additional marine bankers you might call to help with your questions. This is specialized lending so use those who continue to be in the business. Fair winds.
That is spot on. Getting them at all, from most people I have takled to, is tough and stringent (and they were never easy to get). I think you can plan on 20% and not 15% too. Also, do not tell them you are going to be a live aboard and keep your house. They like to see that and they do NOT like to see live aboards. Just FYI.

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