What Buyers Need to Know Before Making an Offer
Purchasing a boat or a yacht is an exciting milestone. Financing one is a lot different from financing a car or a house. Too many buyers come into the process thinking they know how marine lending works, only to find out several weeks or months later that it doesn‘t.
Shelter Island Funding has learned that educated buyers have a distinct advantage. Learning the practical side of boat and yacht financing before you put a boat in an offer can genuinely save you time, safeguard your position at the negotiating table, and greatly enhance your odds of success.
Boat and Yacht Financing Is
Different From Auto Loans
One of the most common mistakes we see is that boat financing operates in the same manner as an auto loan. Marine loans are a different type of lending with different underwriting criteria and risk.
Boats, however, are considered luxury items with a different resale market than cars. Thus, the criteria the lender assesses in order to approve the loan will involve the individual seeking the boat as well as the vessel. The age, make, specifications and purpose of the boat will all be factors. Identical buyers having identical payoff structures may expect vastly different results depending on the vessel they select.
What Marine Lenders Look for
When Approving a Boat Loan
Marine lenders generally focus on four primary factors when
evaluating a loan request:
1. Credit Profile and History
Though a credit score is important, more importance is given to credit depth, credit consistency and credit management. An established track record is more desirable than one high score.
2. Liquidity and Cash Reserves
A boat is also not a cheap investment to make since there are costs associated with owning it, such as: repairing, insuring and cost of moorage, etc. What lenders look for is a healthy remaining cash balances after the closing as opposed to just having enough to contribute with the down payment.
3. Income and Debt Structure
Yachts with a stable income and affordable debt commitments. Marine lenders also tend to be more conservative than conventional consumer lenders, particularly on higher value yachts.
4. The Boat or Yacht Itself
Finance is affected by the age, overall length, condition and the resale marketability of a vessel. Some boats, , although they are cheap, , are hard or impossible to finance as a result of lenders restrictions or a lack of resale demand.
Typical Down Payments and Boat Loan Terms
Most boat and yacht loans require a 10% to 30% down payment, which varies depending on the strength of the borrower and type of boat/yacht being purchased. The newer the boat/yacht and the more established the manufacturer the better the deal you can expect.
The usual mortgage term is around 10 to 20 years, or even longer if it is a large yacht. Longer terms result in cheaper monthly payments but more expensive overall financing. The correct mortgage structure will depend on your cash flow preferences and future ownership plans.
Financing New Boats vs. Used Boats
New and used boats are both eligible for financing, however the conditions will be different.
New boats generally have other financial options available such as more flexible terms of payment and a longer period of financing. Used boats will always require a marine survey, and survey results may influence approval or the terms of a loan.
Vessel age is also an issue at the time of loan maturity. Several lenders have restrictions on the age of vessel that affect the maximum life of the loan, thus constraining financing options for older vessels.
How Boat Usage Affects Financing Approval
Your intended use of the boat is more important than many buyers realize.
Personal use for recreational purposes is the easiest to provide to marine lenders. Liveaboard vessels, charter boats or combination use areas add complication and create a more risky environment and often reduce the accessibility of lenders.
A clear use plan early on avoids last minute surprises and will result in the most suited loan structure for the underwriting criteria of the lender.
Why Getting Pre, Approved for a Boat Loan Is Critical
Pre, approval is one of the most powerful tools in a buyer‘s arsenal. It clarifies what you can afford, gives you a strong negotiating position, and makes you credible to a listing agent and seller.
Pre, approval is even more crucial in that it helps buyers identify whether or not they can finance the boat they fall for, as it is all too easy to become enamored with a boat before realizing that it will not be financed.
Common Boat Financing Mistakes to Avoid
Some of the most frequent challenges we see include:
1. Making an offer before consulting a marine lender.
2. Underestimating the total ownership, and operating costs.
3. Choosing a vessel not within lender guidelines
4. Postponing the documentation until the late stage of the transaction
5. Lacking a plan. Marine funding appreciates early planning. The earlier the planning, the easier the approvals and the quicker to closing.
The Shelter Island Funding Approach
to Marine Financing
At Shelter Island Funding, we believe that boat and yacht financing should be transparent, strategic, and easy for our clients. We work with our clients to provide financing solutions that allow for long, term ownership, preserve liquidity and meet our clients’ specific financial objectives.
It doesn‘t matter if you‘re buying your first boat, or you‘re borrowing for a thousand pound super yacht. Boat and yacht financing may be complex, , but only because it involves a sophisticated understanding of boat and yacht lending criteria, and a strategic approach to boat or yacht financing planning and preparation. Know how lenders look at buyers and boats, then move ahead with confidence.
If you‘re thinking about buying, you should discuss the plan before you make an offer. A good plan up front will save you time, hassle, and surprises down the road.