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Old 09-03-2009, 09:15   #1
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Angry Boat Financing Sucks

Eight months ago, before my wife and I decided to cruise, we were looking for houses. We had multiple banks competing with each other for our business. We ultimately decided to cruise rather than buy a house. (It's a good thing, as the last house we tried to buy just sold for $50K less than we offered.)

Today, we can't get a boat loan for half of what we were trying to borrow to buy a house. We have more cash saved now. We have more income now. We have less debt now. Our credit scores have improved. Yet, we can't secure financing.

Why? According to every lender we've spoken with, after the sale is complete, they don't think we will be liquid "enough". That is, after making our down payment, paying taxes, and paying all of the other costs associated with the purchase, we won't have "enough" cash. It's not that we can't afford the payments. It's not that our credit is bad (it's not). It's not that we won't have cash. Their problem is that we won't have "enough" cash.

Their reasoning baffles me. What is to prevent someone from having "enough" liquidity the day of closing then spend all of their cash (probably on the boat) the day after closing? From which orifice did they pull the number that is magically "enough"? If this magical number really is magic, what else do they have stuffed in there?

I'm sure their reasoning has everything to do with fear relating to the economy and the credit crisis. However, how can the economy ever get through the credit crisis if banks won't make loans to those willing and able to repay?

So, we're back to saving. We should have the required additional capital by May or June. Hopefully, the boat we want will still be available then and the banks won't have made thier requirements more stringent. If not, we're back to the boat search and/or saving again. If everything works out, our departure date will not be delayed, but I didn't need the additional worry.
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Old 09-03-2009, 10:00   #2
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Don't be so honest...

My guess is that this is what happened... Somehow, in your discussions with the bank it came out that you were going to use this boat as full time cruisers. Now you have, in the eyes of the bank, placed yourself in the category of bad risk. Look at it from their eyes; instead of a responsible member of society who goes to work every day at a steady job, lives in a house, and uses his boat on the weekends for fun you are now; without a "real job", living on the boat (that is steadily depreciating faster because you are wearing it out faster, and sailing it much more and putting it at risk instead of in a nice safe marina.

It is common knowledge in the military that you should buy your home before you retire because as soon as you get out you don't have employment history with your new employer. I am equating your situation with that, your employment situation is changing and they are classing you with other people that don't have long history.
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Old 09-03-2009, 10:57   #3
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My guess is that this is what happened... Somehow, in your discussions with the bank it came out that you were going to use this boat as full time cruisers. Now you have, in the eyes of the bank, placed yourself in the category of bad risk. Look at it from their eyes; instead of a responsible member of society who goes to work every day at a steady job, lives in a house, and uses his boat on the weekends for fun you are now; without a "real job", living on the boat (that is steadily depreciating faster because you are wearing it out faster, and sailing it much more and putting it at risk instead of in a nice safe marina.

It is common knowledge in the military that you should buy your home before you retire because as soon as you get out you don't have employment history with your new employer. I am equating your situation with that, your employment situation is changing and they are classing you with other people that don't have long history.
The banks and insurance companies appear to hate liveaboards, which I find a ridiculous attitude. If I live on my boat, don't I have a tremendous incentive (above and beyone the weekend sailor) to make those payments on time and in full? I know the answer, as I am a liveaboard. I am outside before (and sometimes during) every storm that comes through to adjust the lines; I notice if there's more water in the bilge than there should be. In short, I keep my "home" neat, safe and solvent. This is true of the vast majority of liveaboards I know -- even the ones who fail somewhat in the "neat" category. I can't say the same for many of the boats in my marina that are owned by "weekend sailors" (and, to be fair, plenty of weekenders are absolutely diligent in caring for their boats).

Let me be clear: the actuary tables (or whatever they use) are just dead wrong. Liveaboards are much less of a risk. Period, full stop.
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Old 09-03-2009, 11:24   #4
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I think it's hard to comment without knowing any of the numbers.

Is it a new or used boat and what percent of the purchase price are you trying to finance?
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Old 09-03-2009, 11:45   #5
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This isn't new. I bought my present boat about 8 years ago and the financing agent was adamant about not being a liveaboard. I had to sign an affidavit to the effect that I wasn't going to be a full time liveaboard. I suspect that they are afraid the boater will simply skip the country and forfeit on the loan.
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Old 09-03-2009, 12:04   #6
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This isn't new. I bought my present boat about 8 years ago and the financing agent was adamant about not being a liveaboard. I had to sign an affidavit to the effect that I wasn't going to be a full time liveaboard. I suspect that they are afraid the boater will simply skip the country and forfeit on the loan.
yeah, I hear ya. But a) how often does that really happen? and b) what's to stop anyone losing his/her house and sailing away on the boat?

I still think it's a completely spurious argument (the bank's argument, that is).
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Old 09-03-2009, 12:53   #7
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My guess is that this is what happened... Somehow, in your discussions with the bank it came out that you were going to use this boat as full time cruisers.
Yes, but that disclosure is required. From what I've been told, if you say "No" to being a liveaboard when you apply the loan is made under the condition that it you're not going to be living abourd. On closing day, you are asked to sign a piece of paper that says that the answer is still "No" and that certain penalties will apply if the answer ever changes to "Yes". (Of course, no one has ever said what these penalties are exactly.)

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Now you have, in the eyes of the bank, placed yourself in the category of bad risk.
From what I've been told, it has nothing to do with risk and everything to do with bankruptcy law. If you declare your boat as your residence, then file bankruptcy, according to bankruptcy law, they can't foreclose on you and kick you out of your residence. They can, however, foreclose on you if you haven't declared bankruptcy, and the laws for filing bankruptcy have become much more stringent in the last few years. The bank still holds all of the cards.

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Look at it from their eyes; instead of a responsible member of society who goes to work every day at a steady job, lives in a house, and uses his boat on the weekends for fun you are now; without a "real job", living on the boat (that is steadily depreciating faster because you are wearing it out faster, and sailing it much more and putting it at risk instead of in a nice safe marina.
That's simply not the case, though. I still intend on having a steady job - the same one I have now and have had for nearly six years. I'm simply going to be making a boat payment and paying occasional slip fees rather than paying rent. The combination of the boat payment and occasional slip fees would be less than what I'm currently paying in rent. That should look better in their eyes, not worse. I will also be reducing my monthly expenses after moving away from the electrical grid, cable TV, two cars, and Starbucks. Add to that the boat I'm trying to buy is about 10 years old. There's not much more depreciation to be had there.

The risk of something happening while I'm not in a nice safe marina is handled by the insurance the bank forces me to buy, not the bank itself. Risk is also mitigated by limitations on where I am permitted to sail and when.

I would also argue that a full-time cruiser and liveaboard takes better care of their boat and performs more maintenance than the weekender.

Kevin
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Old 09-03-2009, 12:57   #8
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I think it's hard to comment without knowing any of the numbers.

Is it a new or used boat and what percent of the purchase price are you trying to finance?
Used boat. The banks require 20% down. I have the 20% and more in cash. My "more" isn't "enough". If I wasn't trying to save cash to improve the boat after the sale, I'd have enough to put 25% down.
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Old 09-03-2009, 13:22   #9
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The big issues banks have with boat loans are (as communicated to me when I got a loan):
1. The relative low volumes of loans compared to autos or houses make risk assessment difficult. What percentage of middle income owners with decent credit default on new 29' Catalinas versus Ford Explorers? Never mind low volume or custom makes.
2. The difficulty of selling boats if they need to repossess. Not to mention boats can quickly lose value if not well taken care of. Even a new boat, if neglected for a year or more could lose virtually all effective re-sale value.

Simply put, banks won't loan money for stuff they don't understand and most banks don't understand boats.

I've never heard of the live-aboard restriction. I did not have to sign such a thing for my loan. However, my first guess is that banks simply don't understand living aboard and have some whacked idea of why it is bad. Kind of like when I almost got a loan for a wooden boat the bank wanted me to promise to take it out of the water every winter. I suppose it could also be some regulatory or liability restriction that separates recreational from residential loans.
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Old 09-03-2009, 13:41   #10
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Been through this. Ok, your boat at the time of purchase is recreational as you at that point in time are still in a house or apartment. This is your intended purchase for the boat and at that time is perfectly accurate. Second is that banks look at boats unlike homes as something that has a definitive life span of say around 20 years, many banks won't give loans for any boat older than 10 years. Third is that the banks are aware that boats depreciate, so even putting a large downpayment, it is still a risky investment from their point of view. They typically try to compensate this by wanting to see total assets that you have roughly twice the value of your boat loan. If you want a 200k boat loan be prepared to show them a 400k portfolio, hopefully in something where the value is known such as stocks which can be sold immediately versus a house where you are speculating that the house will sell for what you think it will. The best way to approach this is with a financing group that specializes in finding boat loans, rather than a particular bank. They know what banks will finance which types of boats and at what rates. Go to them FIRST, and then knowing how much financing you'll be approved for match that loan to a boat. I think the most common reason for people ending up breaking sales contracts or prospective bidders walking away is they didn't find out what they needed to do for financing first.
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Old 09-03-2009, 14:21   #11
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Simply put, banks won't loan money for stuff they don't understand and most banks don't understand boats.
In addition to that misunderstanding, I've been told that banks don't differentiate between sail and power boats in lending decisions. A lender told me point blank that the vast majority of boat reposessions are power boats. In her experience as a lender, sailors tend to be more conservative. If the banks would differentiate power from sail, less risky loans on sail boats would not be subject to as much scrutiny as power boats. Since the banks consider a boat loan is a boat loan no matter what boat it is, those of us looking to loan money to buy a sail boat are just out of luck.

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I've never heard of the live-aboard restriction. I did not have to sign such a thing for my loan. ... I suppose it could also be some regulatory or liability restriction that separates recreational from residential loans.
If you don't mind me asking, who is/was your lender? Regardless of wether you live aboard or not, a boat loan is considered a recreational loan while a residential loan is just that.

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Old 09-03-2009, 14:44   #12
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If you want a 200k boat loan be prepared to show them a 400k portfolio, hopefully in something where the value is known such as stocks which can be sold immediately versus a house where you are speculating that the house will sell for what you think it will.
Oddly enough, I haven't had this problem. My portfolio value is a little less than the boat value (and dropping every day the market drops.)

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The best way to approach this is with a financing group that specializes in finding boat loans, rather than a particular bank. They know what banks will finance which types of boats and at what rates. Go to them FIRST, and then knowing how much financing you'll be approved for match that loan to a boat.
I did that. The person I am dealing with is a marine financing broker, not an individual bank.

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Old 09-03-2009, 15:28   #13
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This is not unlike problems we meet trying to get property mortgages for our clients, (and one of the reasons why I don’t have a boat myself for the moment, but we won’t go into that!!). Banks have done the usual thing and over-reacted to the crisis they helped create. Now, 20-30% deposits are not unusually required, with enough funds for six months mortgage payments.
Consider borrowing “enough” funds from someone, then give it back when the deal is done? Also why tell them you will be living aboard? You simply have a "change of circumstances" a month later.
I don’t see why any person should have scruples any more when dealing with banks. They certainly don’t have any about taking our bailout money and hording it.
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Old 09-03-2009, 17:04   #14
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Kevingy,

Are you in Florida? Do you think that they are looking at Florida as a high risk region?
IS this compounding your ability to finance?
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Old 09-03-2009, 17:39   #15
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Are you in Florida? Do you think that they are looking at Florida as a high risk region? IS this compounding your ability to finance?
I am in Florida, but the issue of high risk due to being in Florida has not been mentioned as an issue. I don't plan on being in Florida during huricane season, as I expect insurance to remain would be prohibitively expensive. The idea has always been to sail north in the spring and south in the fall.
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