Overseas Radio Network – Yacht Financing, Ways to Lower Interest Rates, & Seller Financing
In the Overseas Radio Network Show 5, Segment 3, we will share tips from experienced yacht brokers. We continue with these insider secrets to buying boats that can save you money when buying a yacht:
- Yacht financing
- Ways to lower interest rates
- Seller financing through 501c3 charities
ESTELLE COCKCROFT: Welcome back to “Yachts: The Perfect Escape Vehicle”. We have been talking about insiders’ secrets to buying boats. We have now kind of decided, guys, what we want, we know how much we want to pay we have done our research but how do we finance the boat?
For a transcript of this podcast, click “read more” below.
Yacht Financing
STEPHEN: Financing is a pretty broad subject. The best thing to do is to ask your broker who he recommends or the preferred marine lenders. There are a lot of lenders that specialized in the marine loans. You know the marine lenders constantly gives the brokers rates that are available. Essentially now a days in this depressed economy, you get rates as low as 4 ½ % up to 5 but 4 ½ seems to be where it is at right now.
Generally, the lenders are looking for 20% down and they will amortize over 15 to 20 years. My personal recommendation is to put down 20% and amortize over the leas number of years that you possibly can so that you can get principle down on the loan. If you can put the boat into charter, you need to know that the lenders do not recognize the charter income. When they do the due diligence on the loan they will check and make sure that you can carry the loan without the charter income.
If you are buying a charter yacht, then your financing resources are limited so you need to talk to your charter broker about who should be approached. Generally private loans are a lot easier to get than charter loans so you need to get some advice from your broker and marine lender when making an application when to put your boat into charter specifically.
ESTELLE: Well that’s a good tip. Gary, how about you on financing?
GARY: Well I highly recommend that you get preapproved by a lender. It is free to do this and marine loans have no points to qualify. They are all you know just simple interest loans, no prepayment penalty. If you know that you are only going to keep the boat for 2 to 3 years, then you can keep your out of pocket expense surprisingly low if you amortize the low over the longest period possible which I realize is the opposite of what Stephen is saying. But it all depends on your strategy as to how long you are going to keep the boat.
One thing to remember is that lenders based their loan approval very heavily on the Beacon or FICO credit scores and I would definitely go find out what my latest FICO scores are. There are a number of different websites where you can do this. Identityguard.com is a very good one. It is about $14 a month to monitor your credit scores. And lenders like to see the score in the 700s or higher.
And they also look at your debt to income ratios. They want this to be below 35% so you really need to know before you go looking at a bunch of boats what you can qualify for because I can’t tell you how many people I talk to who say yeah I want to buy this boat, I’ve got $100,000 to put down you know I think my budget is around $400,000. We go look at a whole bunch of boats only to find out we got a little credit glitch there and we can’t qualify for that amount but we can get say half that amount, it is best to pre-qualify yourself beforehand.
STEPHEN: I have another little tip. In this market where we are having difficulty getting loans, I am finding that buyers are using their…if they have equity in real estate, what they are doing is they are getting a real estate equity loan and they are buying their boat with that. The interest rates are really, really low when you do it this way.
Another interesting way to do it is if you have investments you can often get and investment-based loan where your investment acts as a guarantee. So you can get an investment based loan which gets you out of the agony of having to provide all sorts of personal information and personal finances and you know the questions are just never ending these days when it comes to these banks giving you a loan.
GARY: I just remembered something else and it has to do with your FICO scores that the lenders look at when you are getting prequalifies for a loan. And what I found out is that whenever your credit card balances go above 50%, so in other words if you have a credit line for $10,000 and if you owe more than $5,000 in that month it negatively impacts your FICO scores dramatically.
So what you want to do is when you look at your credit if you see that any of your credit cards have more than 50% of your total credit line owed be sure and pay them down it takes about 3 weeks to 4 weeks to impact your scores but your scores will shoot up again if you make sure that all of your credit cards are below 50% level.
Another thing that I would like to talk about is marine lenders you know there is a lot of banks out there that says they are interested in yacht lending. And they really aren’t. What they really are doing is they want to find that 1 in a 100 golden borrower or you know whose saving accounts they can also get. So a lot of these little banks really aren’t in the business will waste your time you will fill out dozens of forms only to be rejected if you don’t have 110% perfect credit or if you don’t have the big fat savings accounts that they want to get their hands on.
You see that’s what they look at when they are evaluating your loan apps so if you talk to the brokers which is Stephen and myself we know who is real who really wants to lend money and we can guide you to those lenders. Stephen, you have anything else?
STEPHEN: Yeah, another tip when it comes to your interest payments: you can deduct the interest on the loan as the second home deduction, a second home mortgage deduction, unless you already have this deduction with another home. The IRS says that a boat qualifies as a second home if it has cooking facilities and a toilet. This can be a port-a-potty and a sterno stove, so be sure to take that deduction.
Seller Financing Through 501c3 Charities
GARY: I often get asked about seller financing, when purchasing a yacht and you know it just doesn’t happen. You know with boats and yachts you can move them around. You can take them to Brazil if you want to but with real estate you can’t, so but it is possible and very few very rare cases to get some seller financing and those are through the 501c3 charities.
These are IRS-approved groups who helped like disadvantage children or whatever. And they take boats they are donated and then they will resell them and they use the proceeds to fund their activities. In generally you need to put down about 40% of the value and you will have payments stretched out over probably 3 to 5 years it is a quicker pay off than you would get under the usual marine financing. So we can help you with that, but also remember that your choices of yachts are severely limited when you are looking at these seller financing boats. And most of these are boats that couldn’t be sold for one reason or another, like they’re really run down or they are out of style or whatever so I would pretty much forget about seller financing.
STEPHEN: Well, I think there is another issue that we need to discuss. I think we are running out of time in this segment, but the benefits of new versus pre-owned yachts. This is a pretty big subject and I think it needs to be clearly understood in terms of what the benefits and what the pitfalls are of new versus pre owned.
GARY: Yeah, and this is something that can take quite a while to discuss and so we are going to take a short break and we will be back to talk about the benefits versus pre-owned. This is Gary Fretz and you are listening to “Yachts: The Perfect Escape Vehicle”, only on the Overseas Radio Network.
