‘How to finance a houseboat’ can be a difficult question to answer, especially if one does not have the nest egg of a millionaire.
A lot of people wish to purchase houseboats, but many of them fail to overcome the barrier of financing.
However, there are several financing options that you can explore, all of which have their unique advantages and disadvantages. These options include: banks/online lenders/credit unions, marine-loan brokers, personal loans, and home equity.
Buying a houseboat is quite different to buying a home or a boat. This is because ‘houseboat’ is a term that could mean different things to different lenders.
As a result of extensive research, we have come up with a complete guide that will help you get the houseboat that you have your heart set on.
Floating Homes v/s Houseboats:
One might think that the terms ‘houseboat’ and ‘floating home’ mean the same thing. However, even though these terms are used interchangeably, there are a few considerable differences between them.
A floating home is exactly what it seems like – a house created upon a floating base. These homes are not supposed to be shifted around, and are therefore more permanently adhered compared to a houseboat. In addition, a floating home is generally more spacious and luxurious – in fact, Seattle has seen floating homes being sold for as high as $750 per square foot. These homes are extremely common in other countries.
The Netherlands, for instance, has entire districts comprising floating homes. In the US, the idea seems to be catching on in several states like San Francisco and Seattle. This type of home is also considered to be a possible answer to the increase in natural disasters and sea levels.
People wanting to buy a floating home might qualify for floating home mortgages, which are quite similar to conventional mortgages – even to the point of offering tax deductions on the interest rates. Often, a mortgage for a floating home will come with a 10-year term, and consist of an adjustable rate.
As far as the taxes go, you will have to make tax payments just like you would have done for a regular house. You might also have to pay the homeowners’ association charges, specifically for the marina that has the ownership of your home’s slip or berth, as well as for any common areas (such as parking).
Compared to a floating home, a houseboat is generally smaller, more mobile, and less expensive. As far as houseboats go, you will need to consider some additional costs, such as moorage payments, mechanical upkeep, gasoline expenses, and even sewage pumping. In spite of this, the upfront payment for a houseboat is likely to be less than the upfront payment for a floating home.
Financing for a houseboat is generally trickier. This is because it is hard to find traditional boat loans or particular houseboat loans that offer long terms. You can go for a ship mortgage or a marine loan, but you will have to meet specific criteria established by the country’s Coast Guard. You can also opt for a ‘live aboard’ boat or yacht dealer, but you might not get the kind of conventional houseboat that you probably want.
Ways to Finance a Houseboat:
When it comes to financing a houseboat, there is no single method. If you do not mind matching and mixing your liabilities, you might be able to find financing options that are relatively affordable. This means that, if you are unable to find a particular houseboat loan, you could explore the following alternatives:
Banks, online lenders, credit unions:
Any banks or credit unions where you possess an account might be open to offering you a boat loan. See if any lender wants to offer a loan for a boathouse at the terms and amount that you require. Online lenders are another area that you can explore – there are various online platforms that allow you to fill a form over the internet. These platforms will come up with a list of lenders and the details of the loans that they are offering, depending upon your credit history.
Brokers can be of assistance throughout the houseboat buying process. In addition, they can leverage their connections with lenders in order to help you with the financing. Generally, the broker representing the seller will deal with your (the buyer’s) broker. These brokers are quite similar to real-estate agents, in that they help their client secure the best possible terms. Having said that, utilizing a broker for your houseboat purchase can cause you an extra 10-15%, which means that you need to be prepared to pay the premium for the service and expertise.
The HELOC (Home Equity Line of Credit) option is solely for homeowners, and allows borrowers to take a loan against the equity that they own in their homes. Through this method, you can obtain up to 80-90% of the value of your house (or the value of the house minus any liabilities that you might have). If you want a low-interest option that can help you raise a significant amount of money to fund your houseboat, this might well be the option for you. On the flipside, you are putting your house at risk.
Even though you can use a personal loan for pretty much anything, the drawback is that the cost of obtaining such a loan is relatively higher. Since most personal loans are unsecured, they come with higher interest rates (banks use the higher rates of interest to compensate for the higher risk that they undertake).
In addition, the limit for many personal loans is $100,000, which might not prove sufficient if you cannot augment that amount from other sources. Hence, you need to make sure that the limit of your chosen personal loan is high enough to meet your needs.
How is a Houseboat Loan Structured?
Since houseboat loans tend to be larger in amount, the terms are also often longer. Houseboat loans are almost always categorized as portfolio loans; these are loans that stay on the lender’s books, and cannot be sold. This translates to greater risk on the lender’s part, and the lender will transfer that risk over to you in the form of higher rates of interest. Alongside higher interest rates, lenders tend to have various other strict requirements. This is what you can expect when trying to obtain a loan for your houseboat:
Typical rates of interest:
Traditionally, the APR (Annual Percentage Rate) for boat loans is around 4.50%, which makes it only marginally higher than the average APR for a home mortgage. The catch, as we mentioned, is that a boat loan will generally have a limit of $100,000. This means that, in order to cover the difference, you will either have to find another loan or turn to your savings.
Generally, a houseboat loan comes with a fixed interest rate. This means that you will have to pay the same periodic amount throughout the loan term.
There are some boat loans that come with adjustable rates of interest. This means that, for such loans, the interest rate – and therefore, the payable amount – can vary according to changes in certain indexes and the financial market as a whole. A potential advantage for such a loan is that the interest rate might go down. Obviously, the downside is that the rate could also go up. If you are opting for an adjustable rate loan, you should check for any interest rate ceilings or floors. Also, some adjustable rate loans have an initial fixed rate period, so you should look into this as well.
The typical down payment for a boat mortgage begins at approximately 20%. Such a high down-payment percentage, in itself, might be disincentive enough for people to turn elsewhere or even give up the idea of buying a houseboat. However, by maintaining high rates of down payment, lenders want to identify the people who are actually financially capable of purchasing and maintaining a houseboat.
The terms can vary quite a bit – the terms for some traditional boat loans might top out at 84 months (seven years), while others could be spread over almost two decades.
Choosing a Financing Option for Your Houseboat:
Before deciding to purchase, potential buyers need to understand the purchase. In other words, buyers should learn everything about the houseboat that they plan to buy – from the materials used in manufacturing the boat and the boat’s underwater condition, to whether they will own the docking area for the boat. You need to learn exactly what your purchase is, and how the municipality will perceive it.
There are a couple of other considerations that you need to be aware of:
The atypical lending requirements:
In order to obtain a loan for your houseboat, you need more than just a stellar credit history and score. Houseboat loan lenders are going to pay more attention to your asset history and liquidity. For instance, you will be hard-pressed to find a houseboat loan lender that offers first-time homebuyer options. In other words, a potential lender will be interested in your primary income source, as well as any other income-generating assets that might help you with repayment should your primary income source disappear. All in all, obtaining a houseboat loan is more about the comprehensive financial picture, rather than a few selective aspects.
The houseboat slip:
Chucking in a bit of real-estate with the loan will incentivize your lender. In Lake Washington, Seattle, you can expect to pay around $40,000 to $110,000 for a slip (excluding any other homeowner association charges). Purchasing a slip helps to assure your lender that you are actually purchasing a house. Else, you will have to pay monthly rent against the slip.
Other Costs Associated with Buying a Houseboat:
While upfront financing is a key consideration in purchasing a houseboat, it is far from the only consideration. Here are a few other things that you should keep in mind while preparing a budget for your houseboat:
Costs of mooring:
The mooring costs can vary significantly, depending upon the location of your houseboat. For instance, a slip in urban regions such as Seattle can go for as high as $550 each month for any 32-feet boat. On the other hand, the mooring charges in rural lakes are considerably lower.
You will have to pay extra for storing your boat during the winters – unless you can find a storage space that has year-round warm temperatures.
When it comes to vessels as large as houseboats, fuel efficiency tends to take the back seat. In addition, in captive scenarios (like marinas), the per-gallon cost of gas might be much higher than it would be at any roadside station.
You will also need to insure the houseboat, which is another major cost. The insurance rates for houseboats might be two or three times higher than the insurance rates for a regular house.
Remember that the engine is part of the boat, and it will require regular upkeep. Some regular maintenance expenses include tune-ups and oil changes, and the labor rates could go as high as $40 per hour.
The taxes associated with houseboats can vary between states. Hence, make sure to look into the tax laws of your locality, so that you are clear about how your houseboat will be taxed.
Much like other vehicles, houseboats tend to lose value with time. Hence, the depreciation is likely to cost money in the longer run, particularly if you purchase a brand-new houseboat. Unlike a real-estate property, you cannot expect your houseboat to appreciate in terms of value.
When you think of all these considerations and options, you can appreciate the fact that your houseboat financing method will be almost as unique as the houseboat itself. Houseboats are meant to be purchased only by parties who can genuinely afford them; this means that the financing is regulated accordingly.
Alongside the strict liquidity requirements that you will have to adhere to, you will also need to consider the purpose of purchasing a houseboat: do you want your boat to serve as a vacation spot, or do you plan to use it as your primary residence. All of these factors will play a role in determining the right financing method for the houseboat.
About THE AUTHOR
I have a deep love of houseboating and the life-changing experiences houseboating has brought into my life. I’ve been going to Lake Powell on our family’s houseboat for over 30 years and have made many great memories, first as a child and now as a parent. My family has a passion for helping others have similar fun, safe experiences on their houseboat.Read More About Brian Samson