Guide to Home Loans Hawaii
I Want My Very Own “Hawaii House”
So, you’ve binged watched “Hawaii Life” for the sixth weekend in a row and now you’ve got a burning desire to create your very own “Hawaii Life.” Yep, go ahead; I know it’s hard to resist! Scour the internet for “Hawaiian homes with ocean views;” daydream about pina Coladas on the beach in winter… Ahhhhh, so relaxing.
First Things First — Speak with a Lender
While there’s no denying that dreaming is super fun, making your dream a reality is more fun, but it will require money. And, if you’re like most people, this means you’ll need to obtain a home loan. We understand that dealing with finances is a source of stress for most which can make this part of the buying process uber intimidating. We also know that you probably want to get to the “fun part” already. But we can’t go shopping without money. So, first things first- you’ll need to talk with a lender.
***We must disclose we are not lenders and you should absolutely speak to a qualified lender about your finance questions. But we’ve found that providing our clients with some basic knowledge helps them muster up the courage to make that dreaded phone call. So, we thought we’d share the information with you, too. We hope it helps!
Side Note: When choosing a lender, make sure you feel comfortable asking even the “weirdest” questions! If you’re not comfortable asking questions, find someone else! (This rule should also apply when choosing a Realtor®.)
The Four Most Common Loans in Hawaii
You’re Not the Only One That Has to Qualify for Your Home Loan
First, we should mention that just because you qualify for a loan, doesn't mean the property does. Yes, that’s right: the property must qualify too! Most loan programs require the home to be (mostly) permitted and in relatively good condition. In Hawaii, there are a lot of unpermitted structures; your Realtor®/lender team can help you sift through the options to help you find a home that will work with your financing.
Conventional financing typically gives you more options than other loans. You can use conventional financing to purchase your primary residence, a second home, or investment properties. Conventional loans can be obtained with as little as 3% down with good credit and qualifying income. But, with a 20% down payment, you can avoid this thing called PMI. Mortgage Insurance: PMI or MI “PMI” (sometimes referred to as “MI”) stands for private mortgage insurance. It’s an insurance you pay to the lender when you have less than 20% equity in your home. With conventional financing, you can avoid PMI (from the start) by putting 20% down; or, you can get rid of it (over time) by building equity.
FHA: Federal Housing Administration
FHA is often mistaken for a first-time homebuyer program because the requirements are more lenient than other programs: it doesn’t require a perfect credit score (or even close to perfect for that matter), or a large down payment. But you don´t have to be a first-time homebuyer to obtain an FHA loan. An FHA loan requires a 3.5% down payment and comes with “FHA MI.” Unlike conventional financing, you cannot get rid of the MI. Instead, the MI sticks with you for the life of the loan. This can make the overall cost of the loan more expensive than other options.
VA: Veterans Administration
VA loans are not for everyone! They are for the very special people who serve, or have served, in the US military.
MAHALO! WE APPRECIATE YOU! VA loans can be obtained with 0% down, but there´s a funding fee that gets wrapped into the loan. Meaning, you won’t have to bring much money to the closing table, but you will pay interest on the funding fee. It’s also important to note that VA is a little pickier (than conventional) about the condition of the home. On Hawaii Island, VA financing even requires a water test for properties with a water catchment tank. The buyer normally assumes the cost of any tests and/or inspections required by the lender.
USDA is another great 0% down option. This loan can be obtained by anyone purchasing a home in a rural area. Like FHA, USDA is more lenient when it comes to income and credit score requirements. And because Hawaii is almost completely “rural,” you’ll have quite a few options. Unfortunately, Hilo on Hawaii Island is not considered
“rural”; but you can find something very nice on the outskirts or other parts of the island. And even in Oahu (surprisingly), there are areas that qualify for USDA like Kapolei, North Shore, Kaneohe, and even Waimanalo. USDA is also preeeeetty strict about the home condition. We once had a loan get (temporarily) rejected because the bathroom was missing a jalousie. (Yes, one single jalousie! In the bathroom!) Of course, we replaced the jalousie, and all was right with the world. But, that’s how picky USDA can be! It can be helpful to share photos/videos of a
prospective home with your lender before making an offer. They can often provide guidance about what will “fly” and what will not.
Feel Free To Contact Us!
Now, this was just a quick review. Your favorite lender can answer all your detailed finance questions. And, if you don´t have a favorite lender, no worries! We can share ours! Please don’t hesitate to contact us!
Nui is located on the Big Island and can be reached at (808)-365-6193 or [email protected].
Gaby is located on Oahu and can be reached at (808)-783-5285 or [email protected].