How To Get A Mortgage On A Houseboat
Want to live on the water? If you’re somebody who would rather not own the traditional home in a quaint subdivision but instead, want to wake up to the smell of all-things-nautical, you might be considering a houseboat. The first thing to learn about this dream is that it could be pricey.
Browse any of the popular classified websites and you’ll find a wide price range. Some of the smaller “homes” have price tags in the low five figures, but others soar into the millions. Floating homes in Seattle go for around $2.6 million for a 2,000-square-foot home with two bedrooms and 1.5 baths.
The price tag is likely to be higher than the cash in your bank account so a loan might be in order.
Know the Difference
You might think that if it’s on the water and you live on it, all of these housing options are the same. Unfortunately, it’s not that simple. There are two main types: floating homes and houseboats. The easiest way to remember the difference is that a houseboat can move. It’s not permanently attached to a dock, it has some sort of propulsion system and it’s treated legally and financially like any other boat.
A floating home, by contrast, isn’t a boat. It has no propulsion system, it’s permanently attached to a dock and city sewer system, and is treated more like a house than a boat.
For movie buffs, one of the most famous examples of a floating home comes from the 1993 movie "Sleepless in Seattle." In the movie, Tom Hanks lives in a floating home in Seattle, Wash.
The difference between the two is more than academic. The way lenders treat each of these homes is different. A houseboat is considered a recreational vehicle – not a home. Think of it like financing a car. Expect much shorter loan terms than a traditional mortgage. Often, the older the boat, the shorter the loan, which means higher payments.
Because houseboats tend to depreciate rapidly in the first few years – and require a lot of maintenance to keep them functioning properly, lenders are reluctant to stretch the loans. Expect no more than 20-year terms, but they could be much shorter. Also expect rates that are higher than other loan types. The rule of thumb is to expect to pay 1 to 2 percentage points more than a traditional mortgage loan for a floating home mortgage and 3 percentage points higher for a loan on a houseboat.
Unlike automobile loans, you will have to pay for an inspection of your houseboat. This involves lifting the boat out of the water to inspect the hull of the boat and the interior. Expect that it will cost you between $350 and $550.
The down payment is larger too. The lender will probably require a down payment of 20% to 35% before making the loan.
A houseboat might be more like a vehicle, but a floating home isn’t much different to a lender than a normal home. It’s set in a fixed location attached to city utilities. Because a floating home is considered real property, owners have a physical address and pay property taxes equal to those of land-based home owners. But depreciation will probably be factored into the home’s assessed value. This will reduce your property tax bill over time.
Expect prices to be much higher. A typical home on land in Seattle, Wash., costs around $229 per square foot. In contrast, some floating homes in Seattle sell for $1,285 per square foot. Of course, there are bargains to be found but expect to pay more for a floating home.
Just like a traditional mortgage for a home on land, there will be closing costs that include inspections and all of the other fees that come with buying a home. The down payment will be higher and the interest rate will likely be 1% to 2% higher than on a land-based loan.
Getting a houseboat or floating home loan is as straightforward as any other loan once you find a lender. Locating one might prove difficult, however. Realtors who deal in floating homes will know of local lenders and houseboat dealers can make recommendations, but don’t expect a lot of choices.
According to experts, one of the reasons that rates are higher for these types of loans is the lack of available lenders. The lack of supply gives the relative few who deal in these loans more pricing power. You will also find more options in areas that have larger houseboat and floating home communities. Seattle, for example, has one of the largest floating home communities in the United States. Expect to find plenty of options there.
The Bottom Line
If you love the water and fancy yourself making a life on a houseboat, start saving now. You will likely need a higher down payment, interest rates are higher and the overall cost of your home will generally be more than for a land-based home. But if you love the water, the pros far outweigh the cons. For more information, see How To Get A Loan On A Boat Or Yacht. For ideas about other income sources, see 4 Alternatives To A Traditional Mortgage.