Boat Loans

How to Finance a Houseboat

If you’ve ever daydreamed of living on the water and looked into a houseboat, you probably know that they can cost just as much as the average landlubber’s house. For many, turning that dream into reality is where houseboat financing comes into play.

Purchasing a houseboat isn’t like buying a boat or a home. That’s because the term “houseboat” may mean different things in a lender’s eyes. But no matter what type of houseboat you choose, financing one will probably involve a significant down payment and higher interest rates than a traditional home on land. If you know that a houseboat is right for you, the money is out there — here’s how to get it.

The difference between a floating home and a houseboat

You’d think they’d be the same, a floating home and a houseboat. But while the terms sound interchangeable, there are some big differences.

Floating homes:  Floating homes are exactly as they sound; they are full homes that have a floating foundation. They’re not meant to be moved, and they’re more permanently moored to their space than their houseboat counterparts. They’re also often more spacious and luxurious — in Seattle, floating homes have sold for $700 per square foot or more, according to local real estate agents. Common in other countries — including the Netherlands, where there are districts of floating homes — they’re catching on in a smaller way in U.S. cities such as Seattle and San Francisco. Floating homes have even been proposed as a solution to rising sea levels and increasing numbers of natural disasters, according to the National Association of Realtors.

Floating homes may qualify for floating home mortgages which resemble traditional mortgages, including a possible tax deduction on mortgage interest. According to broker Kevin Bagley of Seattle’s Special Agents Realty, floating homes mortgages often come in the form of  10-year adjustable rate mortgages. In terms of taxes, you’ll pay property tax, just like a traditional home. It’s also likely you’ll pay homeowners’ association fees, particularly in a marina that owns your home’s berth or slip and any parking or other common areas.

Houseboats: These types of vessels are more mobile, and are often smaller and less expensive than their floating home counterparts. When it comes to houseboats, you’ll also have to consider things like moorage fees, and the costs of gasoline, mechanical upkeep, and even things like sewage pumping. However, they’ll cost less up front than a floating home.

Financing one is a bit trickier as it may be difficult to find a specific houseboat loan or traditional boat loan with long terms. There are marine loans or ship mortgages, but the vessel typically must meet certain criteria set by the U.S. Coast Guard. Financing through yacht or “liveaboard” boat dealers may be a possibility, but these may not be the type of traditional houseboat you have in mind — as Bagley noted, “houseboats wouldn’t stay on the market longer than a day if there were better loan programs.”

Here’s a look at your options:

4 ways to finance a houseboat

There’s no one way to get a houseboat, noted David Raney, senior vice president of residential lending at Seattle-based Sound Community Bank. “If a consumer doesn’t mind mixing and matching liabilities, there are going to be more affordable ways to do it,” he said, mentioning that if you have trouble finding a specific houseboat loan, there are alternatives:

Banks, credit unions and online lenders: A bank or credit union where you already have an account may offer boat loans. Ask if a lender is willing to take on this type of boat at the amount and terms you’ll need. You can also check with online lenders. You could fill out a single online form at LendingTree and receive several boat loan offers from lenders, based on your creditworthiness.

Marine loan brokers: A broker will help you with the buying process, and they’ll be able to use their connections to help you arrange financing. Typically, deals are made between two brokers: your buyer’s broker and a seller’s broker. They act similarly to a real estate agent, helping you negotiate with a seller’s broker. But that’s not to say that it doesn’t come with a markup on the seller’s end — it generally costs a seller 10% more to use a broker, so expect to pay for the expertise somehow.

Home equity line of credit: Only an option for homeowners, a home equity line of credit or HELOC allows you to borrow against the equity in your home. You may be able to borrow up to 85% of the equity of your home, or the value minus anything you owe. This is a low-interest way to get some extra cash to put towards buying your houseboat, but the downside is that your home could be at risk if you default on the HELOC.

Personal loans: While personal loans can be used for nearly anything you’d like, the drawback is that you’ll likely pay more for that privilege. Personal loans often have a higher interest rate, as most are unsecured, so banks make up for that risk by charging more in interest. Check that the maximum limit works for your purchase — many top out at $100,000, which may not be enough for a houseboat.

How houseboat loans are structured

Houseboat loans may be quite large, so they’re often spread over more time. A houseboat loan is almost always a portfolio loan; portfolio loans are kept on the books of the lender that made the loan and are not sold. That may mean more risk for the lender, so you could end up paying more for the loan as a result. Lenders also may have more stringent requirements, too. Here’s what to expect when looking into this type of boat loan.

  • Typical rates: We found traditional boat loan APRs for as low as 4.29%, as of publication, only slightly higher than home mortgage rates. The catch? Boat loans may top out at $100,000 — that means you will have to add your own cash or another type of loan to make up the difference.
  • Fixed rate: Most houseboat loans are fixed rate loans, meaning they have the same payment over the life of the loan.
  • Adjustable rate: For houseboat loans that have an adjustable rate, payments may change with movements in financial markets and the values of certain indexes. While it could go down, it could also go up. If you’re considering an adjustable rate loan, you might want to look into whether there are interest caps and when the adjustable period begins following a set introductory rate.
  • Down payment: The standard down payment starts at about 20%. While that’s enough to turn many away from this type of purchase, it’s a lender’s way to picking out who truly has the liquidity needed to own and maintain a houseboat.
  • Loan terms: These can vary — some traditional boat loans may not exceed 84 months, while others may stretch for as long as 20 years, nearly as long as a traditional mortgage.

Which houseboat financing option is right for you?

According to Raney, the first step in buying a houseboat is truly understanding your purchase.

“The first thing buyers need to be aware of is what exactly they are buying,” he said, from the type of materials the boat is made out of to its condition under the water, and even whether you’ll own the space where it will be docked. From a financing perspective, he also mentioned that the biggest question is “What exactly is it, and how does the municipality view it?”

Here are some other things to consider:

  • Not the usual lending requirements: Getting approved for a houseboat loan is about more than a credit score. Lenders are going to pay more attention to liquidity and your history with other assets. “I don’t think there will ever be a first-time homebuyer option for a houseboat loan,” said Raney. “I’m looking for income, and a secondary asset as a source of repayment.” For houseboat loans, it’s more about your overall financial picture.
  • Buy a slip with the houseboat: Including some real estate in your loan will sweeten the deal for lenders. In Seattle’s Lake Washington, expect to pay between $50,000 and $150,000 to own a slip, plus additional homeowners association fees. “To a lender, that provides a little more assurance that [a borrower] is buying a home,” Raney said. Otherwise, you’ll need to pay rent for a slip each month.

Other costs of owning a houseboat

There’s more to consider than just the upfront financing when you’re looking to buy a houseboat. A houseboat is far from a one-time cost, and there are a few things you’ll want to consider when budgeting.

  • Mooring costs: This will vary greatly by where your houseboat will be located. For example, slips in urban areas like Seattle can go for $500 or more per month for a 32-foot boat, while you’ll see them priced much lower in more rural freshwater lakes.
  • Winter storage: Unless you’re keeping your houseboat somewhere that’s relatively warm year round, you may need to pay for winter storage.
  • Fuel costs: When you’re moving something as large as a houseboat, fuel efficiency falls by the wayside. And in a captive situation like a marina, gas could be much more expensive per gallon than it would at a roadside gas station.
  • Insurance: You’ll need to insure your houseboat, which Bagley mentioned can be a big cost. “[Houseboaters] pay higher insurance rates, anywhere from double to triple to what you’d pay for a house,” he said.
  • Maintenance: Keep in mind that you’ve got an engine on board, so you’ll have to pay to keep that up. Oil changes and tune ups are regular expenses, and you’ll see labor rates upwards of $30 per hour.
  • Taxes: When it comes to taxes, laws vary by state. As Bagley noted, Seattle levies annual property tax on houseboats where it once charged a onetime 10.1% sales tax as a vessel. Make sure to check your local tax laws to find out more about how you’ll be taxed on your houseboat.

Consider that like a vehicle, a houseboat will lose value over time. This depreciation will cost you in the long run, especially if you buy new. Unlike real estate on land, a houseboat won’t gain value over its life.

The bottom line

For Bagley, a houseboat resident for 13 years, there’s no better waterfront property. “If you were coming here to Seattle and decided that you were going to buy a waterfront condo, you’re going to pay a million, a million and a half,” he said. “But with a houseboat, you’ll get that same 800 square feet for $400,000.” While it’s certainly not the traditional waterfront property, it’s one that could be cost-effective, considering the alternatives.

In the end, how you choose to finance your houseboat will likely be as unique as the boat itself. A houseboat is a purchase that’s reserved only for those who can truly afford them, and the industry regulates financing accordingly. Unlike other loans, you will need to meet stringent liquidity requirements. Additionally, consider how you’d like to use your houseboat as well: will it be your new primary place of residence, or a secondary vacation spot? These factors all influence the financing option that’s best for you.

The information in this article is accurate as of the date of publishing.

 

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