Real Estate: Buying A Home On Water

Although buying a houseboat or floating home as your primary residence is similar in ways to buying a house on land, there are differences in financing, appraisals, and the additional costs involved.

Financing the Purchase

A houseboat is a self-propelled vehicle on water, whereas a floating home is permanently moored and unable to move on its own. Since a houseboat can move on water, you can finance the purchase with a recreational vehicle loan. Although houseboats generally are financed over a shorter repayment period than homes on land, marine lenders often offer houseboat financing with 20-year loan terms. A floating-home loan is similar to a standard home mortgage loan, although not all lenders offer mortgage loans for floating homes.

Generally, when you take out a loan for a houseboat or floating home, you need to make a down payment of 20 to 35 percent of the home's purchase price. Interest rates vary, but lenders usually charge a higher rate for homes on water than homes on land. The interest on a floating-home mortgage typically costs 1 to 2 percentage points more; loans for houseboats cost about 3 percentage points more. The same as for a home on land, you can get pre-approved for a houseboat loan.

Getting a Home On Water Appraised

When it comes to appraisals, lenders and insurance companies request a thorough inspection of the hull and interior of a houseboat to determine its value. As the buyer, you pay for the marine survey. The cost varies depending on the size of the houseboat. Lenders usually use their own surveyors and divers to conduct the inspection. The appraisal for a floating home requires that the foundation below the water be inspected in addition to a traditional house inspection.

Paying Added Costs

Although you won't pay property taxes on a houseboat, you will pay sales tax when you buy the home. Additional costs of ownership include insurance and dock or slip rental fees and an annual relicensing fee, which may be tax deductible. The cost of the fee is determined by the size and value of the houseboat.

If you buy a floating home, you may have to pay a cost similar to a homeowners association fee. You also pay personal property taxes to the county on the assessed value of the structure.

Claiming Tax Deductions

Like a home on land, if you use the houseboat as collateral to secure the loan and live in it as your main home or a second home, you can deduct the interest you pay on the loan on your federal income tax return. You can also deduct the sales tax you paid when you purchased the home (which technically is a vessel) up to the state or local general sales tax rate. A floating home may qualify for the home mortgage interest deduction as well. 

If you are considering buying a house on water, consider these things and contact a home loan company, such as MCS Bank, to discuss different financing options that will work best for your situation.