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Surprise! It's a Great Time to Buy a Boat
By: Jack Innis | Thursday, November 06, 2008 12:02:00 PM
Last updated: Thursday, November 06, 2008 12:02:00 PM
Experts offer boat loan strategies for the current economy.
When times get tough, the tough go shopping!
 Although this spin on the old saying was likely
coined in jest, it certainly fits the current state of affairs regarding boat buying and financing.
Uncertain times are certainly at hand. The stock market has seen its share of ups and downs. Some
major U.S. banks have failed; others are in the midst of bailouts. National media are running numerous stories about a massive "credit freeze" affecting many prospective home buyers.
But opportunity often abounds in the midst of chaos -- and, right now, boaters looking to upgrade may find once-in-a-lifetime opportunities
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Start Shopping — Despite media reports of a "credit freeze"
affecting home loans, marine lenders are still making boat loans — and buyers are finding some great buys in the current market.
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to acquire the boats of their dreams. Here's why:
As the nation's economic jitters persist, more and more used boats are hitting the marketplace, creating a buyers' market. Economic uncertainty
also puts the binders on new boat sales: As new boat inventories backlog, and as dealerships consolidate, may dealers are offering special price
incentives. New or used: it's a perfect opportunity to "strike while the iron's hot."
But are those reports of a "credit freeze" true for boaters, as well as home buyers? After all, if it's
true that banks aren't lending, what good is a buyers' market?
Don't believe all those reports of a "freeze," marine lenders told The Log. For qualified boat buyers,
attractive financing is still available.
They're Still Lending!
"We were at our booth at the Long Beach Boat Show last month, and a couple walked up," said
Michael Bryant, vice president of Trident Funding, which has 13 locations nationwide. "They looked at our sign and did a double take. With all the negative press they'd been reading, they thought
nobody was making boat loans."
While some lenders have retreated from the boat market (Key Bank, Citizen's Bank of Rhode Island
and Wachovia, to name a few), those who remain are specialists in marine lending, and they are very willing to fund loans for solid applicants.
"While we keep hearing nightmares about real estate financing, there are six or seven really strong banks that are still heavily involved and committed to doing boat loans," explained Joni Geis, marine
loan officer at Dimen Marine Financial Group.
But in these uncertain times, boat financing rules have subtly changed. Knowing the score can help
prospective boat buyers take advantage of a great buying opportunity.
In this present environment, lenders are likely to scrutinize applications more thoroughly than in the
past, according to Bryant. In order to insulate themselves better from fraud, underwriters are more likely to do things such as crosschecking phone numbers and addresses on the credit application
with those listed with major credit reporting agencies. To weed out the "bad guys," lenders may also consult online maps to make sure physical addresses exist.
One big change over recent years is in "stated income" loans, where applicants once simply stated their income to the lender without providing backup documents. Even "good guys" might have
difficulties today obtaining loans based on stated income.
Loans not requiring income verification "are still out there, but much of the industry has gone back
to the basics, and wants to see proof of income with tax returns," Geis said.
Playing Percentages
In years past, boat buyers were required put at least 20 percent down to qualify for a marine loan. That changed a few years ago, with some buyers opting to put very little down on the purchase.
Today, marine lenders have become wary about accepting applications for financing with only 10 percent down. But while the majority of loans are being funded with 15 and 20 percent down, a
strong "never say never" attitude still prevails throughout the marine lending industry.
Interest rates vary with each transaction, depending on the customer's creditworthiness, the boat
and the loan amount. Western marine loan officers, when pressed to come up with an average rate, said "high six to low seven percent" is a good working figure.
Length of loan terms hasn't changed -- 15 to 20 years being the average, depending upon the amount financed -- but lenders are taking a closer look at the age of the vessel being considered.
"It's helpful to think that 20 years old is the maximum (age of a boat lenders will finance), but some lenders will consider older boats, depending on the manufacturer," Geis said.
In the current "back-to-the-basics" marine loan atmosphere, even buyers with great credit reports may face more-than-usual scrutiny as the loan underwriting process unfolds.
Marine lenders are currently looking harder at business owners who have difficult-to-decipher profit and loss statements. They also may balk at financing two-boat owners who seems to be relying on
selling their old boats within unrealistic timeframes to qualify for the purchase, or buyers who have chosen a boat with a "pie-in-the-sky" price tag that doesn't match "book values."
Times are tough for boat builders nationwide, whether they produce luxury yacht or runabouts. But the trailerboat segment of the industry seems hardest hit.
"The person who is marginal on a small boat loan may find it tougher to get the loan done than in previous years -- but the customer with good net worth, liquidity and verifiable income is still able to
get a boat loan at some decent rates," Bryant said.
That's not to say trailerboat dealers are having trouble getting financing, but trailerboat terms have
tightened -- just as terms have for larger boats kept in slips.
"A lot of the dealers used to get 10-percent-down financing, but I don't think there's a lot of that
going on right now," Bryant explained. "But there are a lot of reputable dealers out there with good clients who are actively financing trailerable boats."
Robin's Song
Billionaire investor Warren Buffet is fond of the following saying: "By the time you hear the robins singing, spring is already here."
This saying, which cautions investors not to wait for "good news" before jumping back into the stock market, might apply to boat buying as well.
"This is a very good time to be purchasing a boat, and there's a ton of product on the market," Geis said. But while prices are attractive, the 11-year loan officer does not see many "fire sales"
occurring in the brokerage boat market.
"Most boat owners are not going to take a $75,000 or $100,000 hit unless they are desperate -- and few are," Geis said.
While few sellers are motivated to slash prices in half, loan officers are experiencing a rare occurrence: an offshoot of this current economy.
"One positive area is appraised value," Bryant explained. "In sellers' markets, actual selling prices often exceed publicized valuations. Boat brokers and agents often have to argue with lenders for
more money because printed valuations are not realistic representations of what boats are actually selling for.
"But in this strong buyers' market, the opposite occurs. Individuals are picking up boats for far less than published value."
The Tough Go Shopping
Boaters interested in purchasing their next boat in these current times should understand that subtle changes have occurred in the way boats are financed. New and used boat purchasers may
face more scrutiny, may not be able to buy with 10 percent down, and may have to list their old yacht with a reputable broker at a more reasonable price to satisfy underwriters. But prospective
purchasers should be buoyed by the fact that the marine financing industry has not fallen on the same tough times as real estate lending.
"Despite public perception, it's not really any harder to qualify for a marine loan between $25,000 and $3 million than it has been in the past," Geis said.
With a strong supply of new and used vessels waiting for new owners, it seems there are some great deals to be found.
What better time for the tough to go shopping?
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This article first appeared in the November 2008 issue of The Log Newspaper. All or parts of the
information contained in this article might be outdated.
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