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If you don’t have a 20% down payment on a home, that’s OK. Most buyers don’t. But if you’re in that league and acquire a conventional mortgage, the lender will want extra assurance — insurance, if you will — that you’ll pay the loan back.Private mortgage insurance is usually the price to pay until you reach 20% equity or, as lenders say, 80% loan-to-value.

In an effort to help low- and middle-income borrowers, the Biden-Harris Administration recently reduced monthly mortgage insurance premiums for new FHA loans. Those cuts will not affect homebuyers with conventional loans and private mortgage insurance (PMI).

Can you avoid PMI? Other than coughing up 20% down, you could seek a piggyback mortgage or lender-paid mortgage insurance.

What Is PMI?

Private mortgage insurance is charged by lenders of conventional mortgages, which are loans not insured by a government agency. FHA, VA, and USDA loans are.

The 30-year conventional home loan is the most common mortgage, and 20% down is ideal. But…

You’ve seen home prices lately. Twenty percent down on a $250,000 or $400,000 or $750,000 home is just not doable for many, or most. The average down payment for all buyers has been about 13%, according to the National Association of Realtors.®

PMI is meant to protect the lender from risk. The premiums help the lender recoup its losses if a borrower can’t make the mortgage payments and goes into default.

How Much Does PMI Cost?

PMI is often 0.5% to 1.5% of the total loan amount per year but can range up to 2.25%.

The cost of PMI depends on the type of mortgage you get, how much your down payment is, your credit score, the type of property, the loan term, and the level of PMI coverage required by your lender.

If you’re shopping for a mortgage and you apply for one or more, the premium will be shown on your loan estimate. If you go forward with a home loan, the premium will be shown on the closing disclosure.

Estimate PMI Costs

Use this calculator to estimate PMI based on how much home you can afford.

How to Pay PMI

Most borrowers pay PMI monthly as a premium added to the mortgage payment.

Another option is to pay PMI with a one-time upfront premium at closing.

Yet another is to pay a portion of PMI up front and the remainder monthly.

How to Avoid PMI Without 20% Down

One way to avoid PMI is to make use of a piggyback mortgage. Another is to seek out lender-paid mortgage insurance.

Piggyback Loan

With a piggyback loan, typically an 80/10/10 mortgage, you’d take out two loans at the same time, a first mortgage for 80% of the home price and a second mortgage for 10% of the home value, and put 10% down.

The 80% loan is usually a 30-year fixed-rate mortgage, and the 10% loan is typically a home equity line of credit that “piggybacks” on the first mortgage.

A 75/15/10 piggyback loan is more commonly used for a condo purchase because mortgage rates for condos are higher when the loan-to-value ratio (LTV) exceeds 75%.

Both loans do not have to come from the same lender. Borrowers can tell their primary mortgage lender that they plan to use a piggyback loan and be referred to a second lender for the additional financing.

Because you’d be taking out two loans, your debt-to-income ratio (monthly debts / gross monthly income x 100) will fall under more scrutiny. Mortgage lenders typically want to see a DTI ratio of no more than 36%, but that is not necessarily the maximum.

Piggybackers will need to be prepared to make two mortgage payments. They will want to think about whether that secondary loan payment will be higher than PMI would be.

Lender-Paid Mortgage Insurance

In most cases with lender-paid mortgage insurance (LPMI), the lender pays the PMI on your behalf but bumps up your mortgage interest rate slightly. A 0.25% rate increase is common.

Monthly payments could be more affordable because the cost of the PMI is spread out over the whole loan term rather than bunched into the first several years. But the loan rate will never change unless you refinance.

Borrowers will want to look at how long they expect to hold the mortgage when comparing PMI and LPMI. If you need a short-term mortgage, plan to refinance in a few years, or want the lowest monthly payment possible, LPMI could be the way to go.

When PMI Is No Longer Required

Borrowers generally need to have 20% equity in their home to drop PMI.

The Homeowners Protection Act was put in place to protect consumers from paying more PMI than they are required to. Specifically for single-family principal mortgages closed on or after July 29, 1999, the law covers two scenarios: borrower-requested PMI termination and automatic PMI termination.

Once you’ve built 20% equity in your home, meaning you’re at an 80% LTV based on the home’s original value (the sales price or the original appraised value, whichever is lower), you can ask your mortgage loan servicer — in writing — to cancel your PMI if you’re current on all payments. Your monthly mortgage statement shows your loan servicer information.

The very date of this occurrence, barring no extra payments, should have been given to you in a PMI disclosure form when you received your mortgage.

As long as you’re current on all payments, PMI will automatically terminate on the date when your principal mortgage balance reaches 78% of the original value of your home.

If that LTV ratio is not reached by the midpoint of the mortgage amortization period, PMI must end the month after that midpoint.

PMI vs MIP vs Funding Fees

The upside of PMI is that it unlocks the door to homeownership for many who otherwise would still be renting. The downside is, it adds up.

If you’re tempted to go with a mortgage backed by the Federal Housing Administration, realize that an FHA loan requires up front and annual mortgage insurance premiums (MIP) that go on for the life of the loan if the down payment was less than 10%.

Mortgages insured by the Department of Veterans Affairs come with a sizable funding fee, with a few exceptions, and loans backed by the Department of Agriculture come with up front and annual guarantee fees.

Recommended: PMI vs. MIP

Ways to Boost a Down Payment

A bigger down payment not only may allow a borrower to avoid PMI but usually will afford a better loan rate and provide more equity from the get-go, which translates to less total loan interest paid.

So how to afford a down payment? You could shake down Dad or Granny (just kidding; Grandma responds better to sweet talk than coercion). For a conventional loan, gift funds from a relative or from a domestic partner or fiance count toward a down payment. There’s no limit to the gift, but you may be expected to come up with part of the down payment. You’ll also need to present a formal gift letter to validate the funds given to you.

A gift of equity is a wonderful thing indeed. When a seller gives a portion of the home’s equity to the buyer, it is shown as a credit in the transaction and may be used to fund the down payment on principal or second homes.

You could look into down payment assistance from state, county, and city governments and nonprofit organizations, which usually cater to first-time homebuyers. And home listings on Zillow now include information about down payment assistance programs that might be available to buyers searching for homes on the platform.

Even if you can’t come up with 20%, it’s all good because PMI doesn’t last forever, and real estate is one of the key ways to build generational wealth.

The Takeaway

What is PMI? Private mortgage insurance, which typically goes along for the ride when a borrower puts less than 20% down on a conventional mortgage. How to avoid PMI? Hunt for lender-paid mortgage insurance or a piggyback loan, or seek gifts or other assistance to fatten the down payment.

SoFi offers fixed-rate conventional mortgages at competitive rates. Qualifying first-time homebuyers can put just 3% down, and others can put 5% down.

Look into all the advantages of getting a home mortgage loan with SoFi.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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For those of us seeking the appeal of a minimalist life on the water, the cost to build a houseboat will depend as much on how much elbow grease we’re willing to dedicate to the project as it does on the type of materials we decide to use for the job.

A houseboat is a self-propelled vessel with a cabin. There are many styles, giving people wide discretion on how they choose to build their own houseboat.

Let’s break down factors and average costs associated with building a houseboat.

Average Cost of Building a Houseboat

How much does it cost to build a houseboat? Just like the cost to build a house, it depends on size, materials, whether it’s a total DIY job, and more.

The cost of building a single-story 50-foot houseboat is at least $10,000 to $20,000, some sources say. To be clear, this estimate means doing all the work yourself or with the help of friends. A smaller, basic houseboat may cost less than that to build.

Labor costs for professionals like electricians or plumbers will increase your expenses substantially. So understand that you’ll be trading time and know-how for savings.

There are also houseboat kits and plans for sale. Charmingly, some are advertised as DIY pontoon tiny houses.

By contrast, you can choose to purchase a serviceable preowned houseboat that needs some renovations. Used houseboats can go for anywhere from a few thousand dollars to over $1 million for luxury craft that border on liveaboard yachts. Shiver me timbers!

Here’s a rough estimate of the cost of building a houseboat vs. buying a used one.

Regardless of whether you’re planning to handle the build yourself or you intend to refurbish a used houseboat, you may need financing. How to pay for it? Not with a traditional mortgage. Options include a boat loan and a personal loan.

Homeowners with sufficient home equity may be able to launch their houseboat plans with a home equity line of credit (HELOC), home equity loan, or cash-out refinance.

Recommended: How to Find a Contractor

Factors That Affect the Cost of a Houseboat

Houseboat living has caught on with some retirees, who want to downsize home-wise.

It also could be a choice for minimalists and millennial homebuyers who think outside the box.

Not everyone, of course, will want to be a full-time liveaboard. Some water lovers will be OK with a basic houseboat for cruising and recreation, one that is maybe trailerable. Those are factors that will affect the cost of your preferred houseboat.

Here are factors to consider.

Size

The size of your houseboat will have a major impact on the cost of materials you’ll need. Are you planning to build a single-story or double-decker houseboat? Will this be something that would fit on a standard 50-foot pontoon base, or will you need something more robust to keep it afloat?

Taking the high-end estimate of $20,000 to build a basic 50-foot houseboat, that comes out to roughly $400 per square foot, assuming you don’t hire anyone to help with construction.

Bear in mind that these figures are a very rough estimate that was calculated across a broad average of houseboats.

Design

The design of your houseboat will have a large effect on your options when it comes to layout, maneuverability, and aesthetics.

Before you begin construction, you’ll need to decide on what type of hull best suits your houseboat. Aluminum pontoons are popular.

Catamaran cruisers are maneuverable and may be cheaper to build, but they often compromise on space. These designs are easily outfitted with motors and may be best suited for owners who intend to take them out occasionally.

Those looking for larger accommodations may prefer a type of house called a floating home, which is actually different from a houseboat. It often has a concrete hull and is meant to stay in one place, permanently attached to utilities. The price, though, will usually be much higher than that of a houseboat.

A few sailors may opt to build a yacht, which offers the ideal combination of maneuverability and living space. You’ll have to have a hefty check at the ready or prepare to borrow a boatload if you’re considering this option.

Materials

The most common materials used to build boats intended for habitation are aluminum and fiberglass, but in some cases steel and wood can be construction materials of choice.

A standard pontoon base can cost between $3,000 and $10,000.

The cost of interior finishes largely depends on your personal tastes. They can be affordable if you’re fine with a no-frills setup but can tack skyward for more luxurious tastes and larger vessels. Stainless steel appliances and granite countertops cost money, regardless of whether they go in a house or a houseboat.

Will you want a staircase and flybridge? Budget accordingly.

Location and Water Depth

The environment you intend to keep your houseboat in will affect how much you’ll have to pay to make it seaworthy.

The price of an inboard motor may start around $8,000, and a middle-of-the road outboard may be $15,000 and up. Depending on how large your vessel is, you may need to pay for a larger motor with more horsepower.

Federal regulations governing recreational craft prohibit the majority of houseboats from sailing in deep ocean waters. However, cruises along the shoreline, or in a lake or river, are acceptable options for capable houseboats.

Weather

Whether you decide to launch or keep your houseboat in freshwater or saltwater and local weather patterns will affect houseboat maintenance.

Saltwater is a tougher environment but has a lower freezing temperature than freshwater, which means that you likely won’t have to worry about ice forming in the water.

By contrast, if your houseboat will primarily be in freshwater, you may have to deal with ice. As water freezes into ice, it expands, which can damage your hull or rudder.

Permits and Regulations

Any recreational vessel must meet federal safety requirements and possibly abide by state regulations.

Average Cost of Living on a Houseboat Year-Round

The average cost of living on a houseboat is $11,500 per year, some sources say. This breaks down to around $1,000 per month. Some frugal houseboat enthusiasts report living on as little as $6,000 per year.

Most of these costs encompass mooring fees, utilities, and insurance, but you’ll also need to budget for repairs and applicable local fees. Some houseboat communities have a homeowners association that allows all residents to distribute community expenses like maintenance of the docks.

Does a houseboat cost less than a home sitting on terra firma? Generally, yes. You can build a houseboat for far less than a comparably sized single-family home. As a future liveaboard, though, you might want to compare moorage and other fees to the costs of maintaining a traditional home.

The IRS says a boat with cooking, sleeping, and toilet facilities can be a main or second home, so interest paid on a loan for your houseboat could be included in the mortgage interest deduction if you itemize.

The Takeaway

How much does it cost to build a houseboat? The cost could start at $10,000 for a DIY build and depends largely on size and materials. Hiring skilled labor will add to that substantially. An alternative to building a houseboat is buying a used one and making it your own.

How to pay for these nautical visions? One way, for qualified homeowners, is a HELOC brokered by SoFi.

Borrow what you need, when you need it, and access up to 95%, or $500,000, of your home equity.

Tap your home equity and chart a course toward a houseboat you’ll love.

FAQ

How large can a houseboat be?

Most houseboats range from 20 to over 90 feet in length and 8 to 20 feet in width. In most cases, 40 to 50 feet is the average length for a houseboat to be comfortable as a long-term dwelling.

How long does it take to build a houseboat?

A DIY houseboat project may take 18 months to complete, but the time frame will depend on whether you’re able to work on the houseboat project full time and whether you enlist any help. Remember to factor in time to obtain necessary permits or inspections for your area.

Where can I get financing to build a houseboat?

You may be able to finance your houseboat build through lenders that focus on marine and RV lending. Other options are a personal loan, a HELOC, a home equity loan, and a cash-out refinance.

Photo credit: iStock/MarkHatfield

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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If you’re interested in living on a houseboat or just pleasure cruising, you’ll want to know the advantages and disadvantages of owning a houseboat.

Here’s a deep dive into the world of houseboats to help you understand what they are, how they work, and whether buying one is the right choice for you.

What Is a Houseboat?

A houseboat is a vessel built or modified to function primarily as a dwelling rather than just transportation.
When comparing houseboats to traditional boats, you can expect houseboats to have the features of a home, including one or more bathrooms, sleeping quarters, and a kitchen.

Houseboats, among the common types of homes, are distinguished by their intended use as a dwelling.

Depending on how large the houseboat is and how much the owner is willing to invest, houseboats can range from barebones to luxurious.

Characteristics of a Houseboat

A houseboat stands out in the fleet of traditional boats.

Expect houseboats to be less seaworthy than boats specifically designed for transportation. The vast majority of houseboats are intended to be confined to lakes, rivers, and small bodies of water, not the open seas.

Houseboat vs Floating Home

A houseboat and a “floating home” are different. Floating homes are meant to stay in one place, lacking an engine or navigation system. They usually have a floating concrete foundation.They’re generally much bigger than houseboats and cost more.

Even though some houseboats also dock in one place, most can motor to another location when needed or desired.

Houseboat Design

Houseboats may stretch from 20 feet to over 90 feet. A veranda or flybridge may help occupants make the most of outdoor views.

Hull design and materials vary. Here are some styles.

Pontoon: Flat-bottomed boat that’s supported by two to three floats, or pontoons, for buoyancy. This is common houseboat construction.

Full hull: Conventional boat hull with a large bilge that sits partly in the water and offers more space below deck.

Planing hull: Similar design to full hull but is designed to glide on top of the water at speed.

Catamaran hull: Parallel twin-hulled design that joins two hulls of equal size with a solid frame. The wide beam gives it better stability and handling.

Barge: Large flat-bottomed boat designed to handle heavy loads and operate in rivers and canals.

When researching the type of houseboat you want, you’ll want to make an informed choice when weighing livability and seaworthiness.

Pros and Cons of a Houseboat

It takes a special type of person to live on a houseboat. Here are some of the pros and cons of houseboat living to help you decide if you fall into this category.

Pros

•   Reduced living costs: The lack of land to maintain means you won’t have to worry about shoveling snow or mowing the lawn. You can also expect lower utility costs due to the square footage, which could be enticing to people wanting to downsize their home.

•   Nice views: You can’t get closer to waterfront living. Houseboat living offers the possibility of gorgeous lakeside or riverside views every day you wake up and go to bed.

•   Water activities: Depending on the season and local ordinances, you may be able to fish, canoe, and enjoy all the perks of life on the water without having to take extra time off for a vacation.

•   Lower rent or mortgage: Compared with the average stand-alone house, a houseboat may cost less to buy or rent.

•   Possible tax advantages: Houseboat owners may not have to pay property taxes (although a deeded slip in some areas is considered real property), but they may live in a state, county, or city that imposes personal-property taxes. Also, the IRS says a boat can be your main or secondary residence, entitling you to take advantage of the same tax deductions as the owner of a typical house.

Cons

•   Reduced living space: A modest houseboat may be smaller than most traditional homes.

•   Marina or HOA fees: If you want to remain moored and plugged into the grid, you’ll need to pay slip fees or homeowners association fees.

•   Maintenance: Expect to trade land maintenance expenses for boat maintenance costs. In some cases, you’ll need to find a contractor for repairs or an inspection.

•   Lack of permanence: If you intend to sail from dock to dock, you’ll need to make compromises when it comes to having a permanent mailing address or regular friends and neighbors.

How to Finance a Houseboat

Used houseboats start at a few thousand dollars. New houseboats may range from $250,000 to $750,000.

Can you get a mortgage loan for a houseboat? No. But you may be able to get another kind of loan if you have a credit score in at least the “good” range on the FICO® credit rating scale and meet other lender criteria.

Some banks, credit unions, and online lenders offer boat loans.

A personal loan is another option. Personal loans of up to $100,000 are offered by a few lenders. Most are unsecured, meaning no collateral is needed.

A marine loan broker can help you find and negotiate financing, but the broker fee is often 10% or more of the houseboat purchase price. The loan might require 10% to 20% down.

If mortgage rates are ebbing, a cash-out refinance can work for some homeowners.

Other homeowners with sufficient home equity can apply for a home equity line of credit (HELOC) or home equity loan and use that money to buy a houseboat. The rate will typically be lower for an equity product using your home as collateral than that of an unsecured personal loan.

What if your credit isn’t good? So-called bad credit boat loans are afloat out there. They come with a high interest rate.

Just as you would shop around for the best mortgage loan offer, you will want to compare a number of houseboat financing options.

Finding a Houseboat to Buy vs Building One

Just as the cost of buying vs building a house depends on size, location, the cost of labor and materials, and your taste, the same holds true of houseboats.

Clearly, buying a used houseboat is almost always quicker and more convenient than trying to build one from scratch. However, if you have the knowhow to build your own houseboat, you’ll have much more freedom when it comes to how you want to design things.

If you’re deciding whether to buy or build a houseboat, you’ll want to consider your budget, time, availability, expertise, facilities, and tools.

Also consider how you would transport the houseboat from land to water when it’s done.

As for the question of time, most custom houseboat builds take months, if not years, to complete. It’ll be much faster and easier to jump into houseboat living with an existing houseboat.

The Takeaway

Houseboats are a novel option for water lovers, including downsizers, retirees, and free spirits. Living on a houseboat can be cheaper than in a traditional home, but you’ll want to make sure you understand the advantages and disadvantages of living on a houseboat before committing.

If you are ready to take the plunge, SoFi may be able to finance your houseboat. SoFi personal loans have no fees and provide fast cash.

And a generous SoFi-brokered HELOC may unlock the door to a houseboat that you can create memories on and in. Access up to 95%, or $500,000, of your home equity.

Climb aboard that houseboat you’ve always wanted.

FAQ

Can you live on a houseboat year-round?

Yes, but you’ll need to compensate for changes in the weather, particularly if the waters where you’re docked tend to freeze during the winter months. This includes ensuring that your houseboat is insulated and heated through the winter.

How long does it take to build a houseboat?

Construction could take 12 to 18 months to complete, depending on whether you’re building a custom houseboat on your own or enlisting the help of professionals.

Can you get a loan for a houseboat?

Yes, but not a traditional mortgage. Options include a boat loan, a personal loan, a home equity loan, and a HELOC.

How does a toilet work on a houseboat?

A marine toilet usually empties into a black-water holding tank until the boat reaches a marina pumping station, or the tank treats the waste and it’s eventually released in a designated discharge area. Noncruising houseboats usually have a hookup that takes out waste through a sewage line.

Photo credit: iStock/wayra

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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