Oh boy, did we learn a lot here!
Don and I have financed houses, cars, motorcycles, rural land purchases (those are difficult, just fyi)…. but we never encountered anything like boat financing before. EVER! So, this blog post isn’t just a rant, but hopefully a heads up to anyone contemplating a boat loan, as well as sharing the alternative that we ultimately chose.
Let’s start out by clarifying that the rules may be different for a new boat purchase, this is our experience with a used boat purchase over $120,000, but less than $200,000. Also to clarify, this was our experience when we were trying to buy a 1999 Seawind 1000.
We were advised to go through a loan broker for our loan and given a referral by our boat broker. Here’s what we learned:
- Marine lenders do not like boats over 15 years old. If you are looking at a boat more than 15 years old, be prepared; there will only be one or two that will even entertain the idea of financing you. Those willing to consider it, will require a higher down payment and interest rate.
- Marine lenders want to finance boats that are listed with BUC. BUC is the boat equivalent of Kelly Blue Book or NADA guides for used cars. In order to be listed with BUC, the boat must be a known “brand”. For example, and what we discovered, is Leopards, Lagoons, etc. (production boats) are listed in BUC. Now Seawind is also a production boat, but there are not many sales of Seawinds in the United States to compare to the one you may be looking at (comps). If there are few comps, that brand will not be listed in BUC. Seawind does not have enough comps to be listed in BUC (in 2017).
So we were bound for difficulties right from the start! Then we started getting into what the mainstream marine lender requires from the buyer….
- Proof of income.
This is in the form of your last 2 months’ paystubs as well as your full tax returns for two years. If you itemize your tax return, every single page is required. Pretty standard. However, when most of us do an itemized tax return we maximize our deductions. The bank is going to subtract every expense you’ve listed on your tax return from your paystub. For example, if you make $50,000 a year, and deduct $10,000 in itemized expenses, the bank will only give you credit for $40,000 annual income.
- Credit Score
Don’t even consider marine lender financing with a credit score less than 780. They won’t talk to you.
- Debt to Income Ratio
This is how much you owe compared to how much you make. The banks were wanting to see a debt to income ratio of less than 40%. This includes your mortgage as well as the estimated payment on the boat you are financing. For example:
Income: $1000 per month
Debt: $500 per month
Credit card: $100 per month
House payment: $200 per month
New boat: $200 per month
This debt to income ratio would be 50%. You will not qualify. But don’t go thinking you’ll just dip into savings and pay off the credit card to improve your debt to income ratio because they also require….
- 3-6 months of reserves
This means, you have enough money in savings to pay all of your bills, including the new boat payment for at least 3-6 months. Using the example above, you would need $3000 in savings. This does not include the down payment on the boat.
- 20-30% down payment
Our one offer on the 1999 Seawind (because it was more than 15 years old) required 30% down. So, if you are buying a $10,000 boat, you will need $3000 down.
So let’s evaluate…. if I have $3000 in savings for my reserves, and I have another $3000 in savings for my down payment on a $10,000 boat, I really only need $4000 to just buy the boat. If I go through with this loan I will be financing $6000. With the income numbers above, you stand a good chance of just qualifying for a personal loan for the $4000 and not go through this marine lending hassle at all!
I’m using hypothetical numbers here, but the best interest rate we were offered was over 8%. Our bank offered personal loan rates at 4.5%.
The other grand frustration was how ridiculously long it took to get approvals (and rejections). We spent about 6 weeks just trying to get financing.
BUT DON’T GIVE UP JUST YET!
Because then, we discovered Essex Credit. Essex does not work with loan brokers (i.e., pay commissions), so if you have a loan broker, chances are they either don’t know about Essex or won’t steer you to Essex. We were told (by someone, not our loan broker) that Essex would not finance boats over 15 years old; this turned out to be false. When we called Essex to ask their loan requirements, they only required 20% down, a decent credit score and enough income to cover the boat loan. They also offered us a 4.8% interest rate. We completed our loan qualification with Essex in 4 days.
The only difficulty we had with Essex was on closing day. We had scheduled an offshore delivery to avoid paying California Sales and Use Tax, which meant hiring a licensed captain to take the boat 3 miles offshore, driven 8 hours to San Diego, were paying for a hotel room, had our doc agents all lined up to process paperwork when our Essex agent called at 10:00 am (during the middle of our offshore delivery) to say he was really swamped and couldn’t close until the following week.
Needless to say, that did not go over well. I pulled out my ER nurse ‘get it done or else’ persona, convinced him it would not be in Essex’s best interest to have to reimburse us all of those expenses because he was tired, and that he needed to put on his big boy pants and get to work! Apparently, I can have a forceful personality. So we managed to get closed on schedule, but the Essex document delay really created a great deal of unnecessary stress on closing day.
Hopefully, this helps someone prepare for the marine lending process. It is the LEAST fun part of the entire boat buying process! I’ve actually left out some of our frustrations…like the lender that would offer us a loan but the boat could never leave the US… <sigh> Leave a comment if you have any specific questions!
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