Here’s what you need to know…
Why marine financing? Don’t tie up your other lines of credit. It’s much like home financing only easier, with almost no closing costs. Find out what’s possible, the pitfalls, how to use marine financing to your advantage. This article is for those going to the boat show. Those who seriously want to know more.
“Relax. It’s easy and fast. I have been saying that for over 35 years throughout my boat financing,” states Mark Delaney, President of Coastal FinancialBoatLoan.com. “The key to financing a boat is dealing with someone who knows boats and has lending experience. I have been a Commercial Loan Officer & Consumer Portfolio Manager for banks and have closed on over 10,000 boat loans of all types of boats over the years. I have seen all types of credit profiles and have worked with many great clients in addition to helping many repeat clients when they buy their next boat. Let us make your boat ownership dream a reality with boat financing. Look forward to working with you in the near future.” Mark Delaney email@example.com
What is Your Boat Budget and How Much Can You Afford?
When looking at the down payment requirement (Normally 20%) keep in mind that you need an 8-10′ larger monohull to get similar volume. Cats cost more per foot, but are comparable in price per cubic foot of space!
The prices used are based on a well equipped boat and these results are a good indication of what to expect.
Which boat? The one that suits your needs, where the down payment meets your budget, and the monthly payment meets your budget. If you use our Business Yacht Ownership® plan, your average net monthly cash flow (cost of ownership) will likely be close to $0, but you still have to come up with a down payment.
One of the best ways to find out is to take a quick look at the down payment you will be required to make, which is typically between 15-25% with 20% considered normal.
First figure your boat payment: Multiply the current factor of 5.06 (assuming current interest rates of 4.7%) by amount to be financed in (thousands). Also, see how to adjust the monthly payment for second home interest deduction, below.
Are You Qualified? What Lenders are Looking For
- Do you have a source of liquid assets for the required down payment? (See graphs for amounts.If your order is 6 months to a year away, we may get conditional approval now and you can still proceed and take advantage of current lower prices.)
- Debt to Income Ratio: Divide your total monthly debt service by your total monthly income. Lenders are looking for approximately 35 – 40%. (Note: multiply the loan amount, in thousands 80% of the boat cost by 6.43 to get your monthly boat payment and add that to your other monthly, long term expenses to get your monthly “debt service”) EXAMPLE: The boat cost $500,000. Multiply 500*6.43=$3,215 your monthly payment. Further note. Even if you’re setting your boat up as a business, the bank will look at your ability to finance normally, in spite of income and tax advantages, until the business has filed two years of tax returns showing that you really are in business.
- Lenders would like you to have boating experience and this affects their approval. Ownership, or chartering counts. If you don’t have experience, talk to us about taking an ASA course.
- It helps to have credit for big-ticket items–another boat, or a home would normally work.
Tax-Adjusted Payment With Second Home Interest Deduction
A boat qualifies as a second home. So, you can deduct the interest to reduce the monthly cost of the loan. For example, financing $320,000 for a boat, the monthly payment would be $1,619.20. With the second home interest deduction, this effective cost is reduced to $1,283.20 (tax adjusted).
Here is the simple math. Lets assume current interest rates for marine loans are 5.06%. Multiply the amount to be financed in thousands: Say the boat you wish to buy prices out at $400,000 and the financed balance is $320,000 (80%). So, the payment is calculated as 5.06 X 320= $1,619.20 which would represent a normal loan payment without second home interest deduction. Now, with the second home interest deduction, the formula becomes 320 X 4.01 (tax adjusted interest rate assuming 38% tax bracket) =$1,283.20 per month, a significant reduction in out of pocket cost!
Factoring Income and Tax Advantages With Business Yacht Ownership®
Purchasing a new yacht using the tax advantages and income provided through the Business Yacht Ownership® program can dramatically reduce or even eliminate the monthly costs of yacht ownership. It is important to factor in tax savings and other cost savings available with this approach when determining the amount of loan payment you can afford each month. Talk to one of our associates and have them prepare a custom business plan for you and your tax advisor.
Below–a guide for minimum down payment to expect for various sized Cats or Monohulls–scroll down to compare sizes.
Comparing Monohull and Catamaran prices. I recently did a comparison of price per foot vs price per cubic foot. Cubic measurement is a more accurate measure of the space available, and at the end of the day that’s what you’re paying for. So When comparing boats–compare price per cubic foot. You may need to get a 7-10′ larger monohull to get the same space as in a catamaran!
What to Look Out For, Especially at the Boat Shows…
- Teaser rates. Low rates offered for a limited time that go up to above average rates.
- Make sure the loan is simple interest, and that there is no pre-payment penalty.
- If you’re planning on a Business Yacht Ownership® program, do not file an application until you have talked to us. These brokers will discourage you, or convince you that they can finance a business boat. They can’t–at least not at the normal terms they’re talking about. Talk to us–we have proper sources.
- Do not submit applications to multiple brokers. They all use the same banks and you’ll just muddy the waters. Multiple inquiries lower your credit score–talk to us, let us submit your application to a source that we know will likely approve you. We do this by submitting a simplified application (linked, bottom) first, with no credit inquiry–just to get you pre-approved. Then when all is ready, we submit the final application.
Other Things You Should Know…
- Documentation. The bank is going to require U.S. Flagging of the boat (C.G. Documentation, Federal, not State Registration) This is in your and the Banks best interest. They get their lien recorded. You get a clear title that’s easy to deal with at settlement when you sell (also, the full protection of the U.S. government in foreign ports, and many other benefits–your boat is immediately worth more!)Settlement costs. Typically about $500 for documentation. About $300-$400 if you want to set up an LLC (Good for business boats, or anyone who wants to protect their boat from the legal system.)
- Possibly sales tax. You do not avoid sales or use taxes by registering a boat in Delaware (or any other non-sales tax state). It doesn’t matter if you’re a state resident or not. In most states, it’s a use tax (one way or another). If you use the boat in the state a majority of the time, it’s due no matter what else is at play. Often by locating a boat in the Bahamas or the Caribbean for the majority of the year, or following the sun and not being in the state a majority of the year, it can legitimately be avoided. Ask us for more details. If it’s due, it’s 5% in Maryland, caped at $15,000. Generally once you pay it in any state, you don’t have to pay it again in another (Unless they have a personal property tax, like VA–no wonder you don’t see so many VA hailing ports.)
- You can use any name and any hailing port you like, even if the name is already used, and no matter where you live.
- When we arrange your loan, whether for private ownership, or Business Yacht Ownership® (BYO) we provide a complete amortization table which shows your monthly and annual interest cost so you can reduce the taxes your paying by that amount and reduce your out of pocket costs.
- Late model used boats (Less than 10 years old, generally) qualify for similar terms as new boats. Generally used boats do not qualify for the Boat as a Business® program–call us.
Important Final Notes…
These requirements change from time to time, so contact us to get the latest information, or send in the application for a tentative approval.
If interested in our Boat as a Business® program to reduce the costs of ownership and get tax advantages, we recommend attending a webinar. Webinar information and registration here.
Get pre-approved: Download a Finance Application