We have finally found our new floating home! We just returned home from Florida about a week and a half ago. The survey went well, but a few larger maintenance items did come up…as expected. We renegotiated the price to account for some of the issues found, but we made pretty quick work of it. All in all I think we all agree we settled on a fair price. We will officially close on the boat next Wednesday, but everything is in place and ready to go.
That said, Ed and I received a rude awakening to the world of boat financing and boat insurance. Holy hell…I knew we’d encounter a bit more difficulty than purchasing a house, but we were extremely unprepared for the sheer number of hoops one must jump through to get financing and insurance. I will sum up some of our lessons learned and warnings for others one at a time.
First, some preliminaries: DO NOT expect that you will be able to secure financing just because your finances can support the monthly payment and you have an awesome credit rating. Ed and I both have excellent credit ratings; I’m convinced at this point it didn’t mean jack [bleep]. We were also (THANKFULLY!) warned that banks WILL NOT give you a loan if you are going to live aboard without a permanent address. You have to get the boat before you sell your house. Also, DO NOT mention you are going to sell your house…. I understand this is an impossibility for most folks who are pursuing full time cruising. In this instance, my cold, hard, and frank advice is to find a boat you can afford to buy with cash (or financing via a different method).
I am quite sure the ONLY reason we were able to secure a boat loan is because we have the ability to pay cash for it. We just wanted to avoid doing so for tax reasons. In spite of this, they still required 30% down. Although it seems really dickish how the banks approach this, there are a few simple explanations as to why banks are REALLY picky about boat loans.
- They don’t want to finance live-aboards because the boat is the collateral, and the collateral is mobile…internationally mobile. If the debtor (you) decides to balk on making payments, they know they will have a hard time getting possession of their collateral. They figure if you still maintain a permanent home they will be more successful in getting the boat at some point if they must sell it to satisfy the debt.
- Boats are depreciating assets…hence the large down payment and requirement to show cash asset to basically cover the cost of the boat. If a debtor balks on payment, that basically leaves the bank no other option than to sell the boat to satisfy the debt. If the sale price (assuming it was done in good faith) does not cover the debt, the bank can go after the debtor for deficiency. This is nearly always a losing battle, because private owners will nearly always find ways to make their assets disappear before banks can get ahold of it. The banks just don’t want to go there. Therefore, the required larger down payment is a security deposit of sorts.
- Boats live on water, and water (especially the salty kind) can cause really expensive problems in a hurry. A boat owner who has a very damaged boat, which insurance probably won’t cover (I’ll discuss that below), does not have very much incentive to pay back the loan. Although banks REALLY don’t want to deal with trying to secure deficiency, they want to know that they might have at least a little bit of luck.
The final conclusion I’ve landed on through this process is banks only give loans to people who don’t technically need them, but are just getting them for convenience. If you NEED a loan to get the boat, you won’t get the loan. We basically had a choice of either giving the government some extra dough or the bank. The math, on this occasion, worked out that we’d end up giving the bank less than we would have had to give the government, and, therefore, the bank won this round. I know…first world problems. I just wanted anyone who reads this who is thinking of boat financing to understand the realities of boat loans before dreams get totally crushed.
Here’s the short version: even if you have hull coverage, in reality, you only have a liability policy that costs more.
Ed: And even the liability policy doesn’t cover much.
Me: Oh who cares, that’s the other person’s problem.
So fair warning, don’t anchor or moor next to our boat. But seriously, we will try our best not to be negligent.
The insurance policies require so much of this, that, and the other, that you WILL screw something up, and the insurance policy will say, “nope, not covered.” It is literally an open secret that boat owners tell things to insurance underwriters that give them warm fuzzies, and no one actually can physically adhere to said conditions. At least we are operating with the knowledge that we won’t be making any claims, the policy is just there to let the bank’s lawyers and insurance company’s lawyers have something to argue about should the boat end up as a total loss.
Although it has been a trying couple of weeks getting financing and insurance sorted out, we are excited about heading back to Florida in a couple of weeks to officially take possession of her! We have already made arrangements to work with a skipper for a couple of days so we can get familiar with operating the boat, and then we will sail her to the east coast of Florida to begin the first round of maintenance.
We will also share the boat’s new name once we have officially documented it!