Whether you’re in the market for a fishing trawler, a sailboat or a cabin cruiser, the most important thing before you shop is knowing your budget. After all, you don’t want to fall in love with a model you can’t afford or take on debt that could put your finances at risk.

To come up with your boat budget, you’ll need to factor-in your credit score, income, debts and other financial obligations. This will give you an idea of the type of financing you may be eligible for, as well as your ideal price range.

Calculating how much boat you can afford

Purchasing a boat requires a significant investment. Used models can cost as much as $25,000, while new vessels can cost upwards of $40,000. That’s why many boat owners choose to take out a boat loan to finance their purchase.

But even if you don’t have to pay the whole amount up front, you still need to figure out your budget before you shop to avoid any unpleasant surprises. Here’s how to do that in three easy steps.

Step 1: Check your credit score

Just like with any other credit products, your credit score will determine whether you’re approved for financing and how much you’ll pay in interest. That’s why the higher your score, the better, as you’ll be able to secure the lowest rates available.

Since boat loans are a type of personal loan, you’ll typically need a credit score between 610 and 640 to qualify, and a score of 690 or higher to get the lowest rates.

If you aren’t sure whether your credit is in tip-top shape, the best thing to do is request a copy of your credit report to know where you stand. Some banks and financial apps offer this information for free if you’re a customer. You can also get a free annual copy of your credit report from all three bureaus by visiting AnnualCreditReport.com. Although these copies won’t give you your actual credit score, they will give you an idea of whether it’s a good time to apply for a loan or if you should improve your credit first.

Step 2: Calculate your DTI

Your DTI or debt-to-income ratio is a figure that lenders use to measure how much of your monthly gross income is compromised by your debts. This figure is expressed as a percentage and is the most important factor in determining whether the lender will approve your loan.

Lenders typically prefer a DTI of 43 percent or less to approve you for the loan. Anything above that would be considered too risky by the lender, as you have higher chances of defaulting on the loan should your financial circumstances change.

To calculate your DTI, add up all of your monthly debt payments and divide that number by your monthly gross income. Alternatively, you can use Bankrate’s DTI calculator to help you crunch the numbers. If your DTI is on the higher side, hold off on applying for a loan until you’ve managed to pay down some debt, as this will increase your chances of approval.

Step 3: Figure out your budget

If both your credit score and DTI make the cut, then the next step is to figure out how much you can borrow. You can do this two ways: by using a boat loan calculator or getting prequalified with multiple lenders. The former will help you determine the interest rate you can afford and the ideal repayment term, while the latter will give you a more realistic idea of what you’re eligible for with a specific lender.

Prequalifying with multiple lenders is also the best way to ensure you get the best terms for your particular situation, plus it won’t hurt your credit. That said, it’s possible that you may qualify for a higher amount than expected with one or multiple lenders. But just because you’re approved for $100,000 doesn’t mean you should borrow that whole amount.

If you’re wondering what a good rule of thumb is for a boat payment, it will depend on your DTI. If your DTI is on the higher side, your payment shouldn’t exceed 5 percent of your monthly gross income. But if you have a lower DTI, then a good rule of thumb is to not go over 10 percent. That means if you have a monthly gross income of $5,000, your payment shouldn’t

exceed $500 a month — or $250 if you have a high DTI.

Other considerations

Buying a boat is similar to getting an RV or another vehicle. You’ll have to factor-in yearly maintenance costs and insurance as part of the equation.

According to Bankrate, you can expect to spend about 10 percent of the cost of the boat in maintenance alone. So, if you have a $35,000 boat, that translates to $3,500 a year or more just to keep it running. Then, there’s insurance costs. Boat insurance rates typically equal 1.5 percent of the boat’s insured value, though this figure can fluctuate greatly depending on the company and your location.

Other expenses to consider include:

  • Fuel
  • Taxes
  • Dockage fees
  • Winter storage
  • Safety equipment
  • Registration fees
  • Certification fees

The bottom line

Owning a boat it’s more than just purchasing the vessel itself. To know how much boat you can afford, make sure to include maintenance costs, insurance and other extras, in addition to your estimated monthly payment. This will help you determine whether a boat is something that actually fits within your budget or if you need to make some adjustments before taking the plunge.