Boat loan question for newbie

[rgizzie]

Going to sell my house. Should I secure the loan before or after I sell my house? What looks better for the application process?

[SSgtPitt]

FWIW, we took a 2nd on the house to pay for our boat. Lower interest rates, no qualifying and the interest is deductible. 10K left and she’s ours 100%.

[rgizzie]

I want to sell my house though.

[drewzn]

We also secured a home equity loan for our boat. We sold our house a year later which paid it off.

[rgizzie]

Well...my thought would either be to sell my house and buy it outright or put a down payment and get a loan so I have a good cruising kitty. Either that or pull from retirement.

[drewzn]

That's not a bad idea. Just put a down payment and have a cruising kitty. You could rent out your house so you also have that as an investment rather than an expense. Don't pull from your retirement. That can turn into a slippery slope.

[rgizzie]

Just trying to figure out if I get the loan before or after I sell the house. Would the bank look favorably if I had the house?

[John_Trusty]

So, assuming that rgizzie is in the US, although I understand that most of western Europe is similar ... It won't matter much what order you do your changes in, but give the changes some time to percolate through the credit reporting system.

Details: Banks look at several factors in deciding if you are credit worthy (the 4-C's), of which you are dealing with two critical ones - capacity (ability to repay) and collateral. Effectively, your capacity is your income vs. minimum payments (cash flow), and your collateral is the equity (value less debt) you have in the things you own. If you are honest about your house value less selling commission (many people guess too high), the equity in your house should be about what you will take away from a sale. The equity on the new boat will be buying price less debt. If you have cash flow (capacity) to pay for the boat debt, no problems. The real problem is that any major changes scare banks, because many people get in over their heads. This is why your credit rating drops right after opening a credit card or buying a car. If you just sold your house, it will take several months before that info percolates through the credit reporting process to adjust your debt / equity information. I would discuss this whole thing with a bank or credit union loan officer before you make any permanent changes to see how they will treat it. BTW: Where are you going to live post-house-sale and pre-boat, if you decide to do it in that order?

[sailorboy1]

Originally Posted by rgizzie

Just trying to figure out if I get the loan before or after I sell the house. Would the bank look favorably if I had the house?

Depends on the bank. Reach out to a boat specialist like Essex or BoatUS and ask the local loan rep. My feeling they are going to be more interested in your loan/value and over overall credit and income etc.

[SailsWithFists]

Watch this video. They go into the minutia of boat loans including what not to do and what you can expect:

https://www.youtube.com/watch?v=T86bgoh2KGE&t=594s

In a nutshell, selling your house first could reduce your apparent stability! Where do you live and how long have you lived there?

[hellosailor]

There's a good YouTube by a couple that talk about all the things that aren't mentioned. Your debt-to-earnings ratio, whether you'd made at least 24 payments on a mortgage or major installment loan before, all the little major issues that don't get discussed. Some couple that bought a catamaran, sorry, don't remember their names but I'll bet you can find it.

[Dogscout]

In my recent boat shopping I came across a similar quandary. this situation is mine, yours may be similar or not.

I am retired and 53 years old so my income is now just my company pension which is actually less than my monthly expenses. But I have additional assets and investments that make up for that and I am in the spending phase of life vs saving. Because my investments are doing well and better than loan interest, I do not want to sell assets to buy a boat. I will eventually sell the house if liveaboard life suits me and I plan to be gone for multiple years.

The problem is debt to income ratio as was eluded to in the video above. I can't borrow enough for what i want based on my current income, and that some of my investment assets are excluded because they are IRA's that I can't touch without penalty until age 59.5. So I discussed selling the house now with a boat loan agency and paying 1/2 cash and financing the other 1/2. This was met with a "bad idea" discussion. With no house they are not going to lend the money. They want an address to chase you down at, if you default, and they don't want to chase a boat. So my plans are changing to a pre-owned boat vs new, and taking a second on the house without selling assets to buy the boat. If the liveaboard life suits me than I'll sell the house and modify the loan or payoff the boat.

My point is that it appears better to keep the house while you secure a loan for the boat. Judging from responses here I can tell that is the most popular route.

[h2uhoh]

I do home loans for a living so I can provide a ton of insight from that side of the world. Not so much on the boat loan side of things but I've chatted with a couple boat lenders so I have a decent idea. If you can qualify while you own your home I think you'll be better off. Lenders want stability and the fact you've got a mortgage ties you down a bit and equates to less of a flight risk. The challenge there is you've got to debt out with both the mortgage and boat payment.

If you have equity in your home (and home prices are statistically the highest they've been so there's a decent chance) it's much easier to pull the cash out of your home. You can easily pull cash out of your home up to 80% of the appraised value (or 100% if you're a veteran of the us military. You can also have higher debt ratios too!). In addition to being easier to qualify for a home loan you'll also have lower interest rates and you'll amortize it over 30 years instead of 20 so you'll have a lower payments any way you look at it.

Feel free to pm me if you've got any other questions. I've been in home loans since 2003 and am licensed across most of the United States.

[valhalla360]

Taking out a loan against your house to buy a boat doesn't do much of anything other than playing a bit with time frames. You can't sell the house unless all loans against it are paid off, so before you leave, you have to liquidate the house and pay off the loans no matter what.

If you are going to get a separate loan with the boat as collateral, it depends:
- If you have sufficient income, it will look better to do it beforehand as home owners are considered more reliable. Let's say you have $10,000/month income, a $1000/month mortgage and the boat will be $1000/month...this works.
- But let's say you have a $4000/month take home. If the mortgage payment is $2000/month and the boat payment will be $1500/month, they will say you are too deep in debt.

Of course, I'm of the opinion if you need a loan, you can't afford the boat in the first place.

[mikedefieslife]

Originally Posted by valhalla360

Of course, I'm of the opinion if you need a loan, you can't afford the boat in the first place.

That would all depend on the economics. I know this is more about the US, but in areas of Europe where interest rates are crazy low or even negative, it can be better to take a loan even if you have the cash.

e.g Take a 50,000 to cover part of the boat at 3.49%. Then stick your 50,000 cash in various investment and savings schemes. Should earn you an easy 5% interest. Result is you are better off.

This is something that UK university students were encouraged to do back during the old loans system. Even they didn't need a loan, they were better off taking the maximum available, and sticking it savings accounts as the interest rates were higher than the loan interest (which was set to match inflation).