Four years ago, some marine lenders only cared about credit score. Some only cared about your debt-to-income ratio. Some banks cared more about your liquidity position. And some banks only cared about your net worth.
Today, all of the banks care about all of those things.
“In today’s lending environment, you’re looking at having a minimum credit score of 700,” said Dave Patnaude, vice president, marine client manager at Bank of America. “You’re looking at having a debt-to-income ratio, which is your gross monthly income versus your monthly obligations, of 42 percent or less. In terms of liquidity, banks want to see some kind of liquidity, whether that be cash in the bank, stocks, bonds, whether it be a 401k or an IRA. A liquid asset is anything that can be turned into cash within 30 days or less.”
Banks want assurance that if you lose your job after getting a loan, you will have cash reserves to carry you for six, twelve, or eighteen months. If would-be buyers are in a situation where their reserves can only carry them for two or three months, they likely will have a problem getting approved.
Realistically, if you meet debt-to-income and liquidity requirements, you need to check your credit score, but to keep from pulling it down, do no more than two or three inquiries. Patnaude added that the number of lenders has decreased as a result of the defaults. A few years ago, he said, there were 15 national lenders that offered marine and RV financing. Today there are around five.
Banks also want to know the boat they are lending money on is worth the price. You can do some of the prep work for them by researching the market yourself. Try the buyer’s guide advice at Boats.com, which includes advice about how to use NADA Guides, for starters.
Once you have your financials in order and know the value of the boat you are focused on, consult your lender to get preapproved, what Patnaude humorously calls “armed and dangerous.” But what if you must first sell your boat? Still, go through the preapproval process just to be certain you will qualify.
“A good piece of advice would be before you sell your boat, go ahead and get prequalifed on the next boat, even while you have your current boat,” he said. “Just explain to the loan officer, ‘I want to apply based on not having my current boat loan,’ but having a new boat loan on this boat for this purchase price with the intent of putting this amount down.
“I would highly recommend that because I’ve already come across two people in the last six months who sold their existing boats and went to apply to get new boat loans, and found out that they couldn’t qualify. So then they had no boat.”
And that’s a lamentable place to be.