How to Buy a House in Hawaii

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Although buying a home in Hawaii is unique, how to buy a house in Hawaii isn’t all that different than buying in other parts of the country, it includes the same basic steps but there are some unique considerations to make when buying in the Aloha State. I’ll cover the key steps on how to buy a house anywhere and then we will discuss the special considerations that are Hawaii specific.

Making the Decision: Is Now the Right Time to Buy a House?

Before you jump into the house hunt, it’s important to determine whether now is the right time for you. 

Can you afford to buy a home? 

Showing at least 2 years of consistent and reliable income is going to help persuade lenders that you are a safe investment. 

Do you have enough saved for a down payment and closing costs?

You’ll need to save between 3-20% of the home value as a down payment. Closing costs can cost between 3-6% of the home’s value. In some cases you may not need anything down.

Are you planning to stay in Hawaii for 5-7 more years? 

The cost of buying and selling a home is considerable, so you want to make sure you are going to live in it long enough to make up for the costs. 

Get your Finances in Order

This step is about getting the right documentation together to show the lender that you are a sound investment. This includes gathering and providing your bank with W-2’s, pay stubs or tax returns. The lender will use this information as well as the debt shown on your credit report to determine your debt-to-income-ratio (DTI). To determine DTI, simply divide your monthly debt by your gross monthly income. In most cases, you will need to have a DTI of 50% or less to qualify for a home loan. 

Your home is likely going to be one of the largest purchases that you will ever make. For this reason, it’s a good idea to spend some time improving your credit score and paying down your debt before shopping for mortgages. Your credit score is going to affect whether you qualify for a loan and at what interest rate. Improving your credit score just 20 points before applying for a loan could save you tens of thousands of dollars in interest payments over the length of a 30 year mortgage.

Take a look at your income and your cost of living to determine how much you will be able to afford on your mortgage payment. Owning a home comes with additional costs beyond mortgage payments including property taxes, homeowners insurance, and maintenance costs. Here’s a tool to help you calculate this.  

Shop for Mortgage Loans

Now it’s time to approach some lenders. You could save thousands of dollars by comparing across multiple lenders so make sure you shop around a bit. Compare the fees as well as the interest rate to determine the long-term cost of the loan. Conventional loans are a popular option and some are offered with as little as 3% down. Federally backed loans are a great option if you qualify. These include; FHA, VA, and USDA loans. Lenders will ask for several things in order to consider you for pre-approval: 

  1. Your social security number
  2. Bank account statements
  3. A list of all outstanding debts
  4. Two years of tax returns
  5. Salary information
  6. The amount you have saved for a down payment

Find the Right Realtor

Your real estate agent is an important partner when buying a home. They can share their knowledge of the buying process, negotiations, and how to buy a house in your area. In most cases the buyer’s agent is paid by the seller during the sale- making their commission free for you. 

How can you find the right real estate agent for you? The right agent for you should:

  • Have been working in real estate for several years.
  • Be very familiar with the area you are looking in.
  • Listen to your needs and deliver on them.
  • Have an attitude that lets you know that you are an important client to them.
  • Demonstrate excellent communication skills.

Your realtor will help you navigate the process and represent your best interest. Make sure you choose someone you feel comfortable with and who you can trust. A good agent can make a world of difference. 

Search for Your New Home

Now it’s time for the fun part, beginning the search for your new home. You’ll start by looking at homes in your budget and that fit your lifestyle. Here are some things to consider:

  • Neighborhood
  • Price
  • Square footage
  • Number of bedrooms
  • The condition of the home and cost of repairs and renovations
  • The school district
  • The Flood risk

You will likely end up viewing many houses before you find the one. Take your time with this process. Once you find one that fits your needs, it’s time to make an offer. You and your agent will negotiate a fair offer based on comparable homes in the same neighborhood. Once you have reached an agreement on price, the house will go into escrow, which can take about a month to complete. During this process it’s important to get a home inspection and an appraisal to be sure that the home is a safe investment. If any issues come up in the inspection, you can ask the seller to make repairs or ask for a discounted price to cover these repairs. 

Close on Your New Home

Once you come to an agreement regarding all the details of the sale with the seller, the lender will arrange for a title company to prepare the paperwork for you to sign at the closing meeting. It will take a few days for the paperwork to be returned to the lender and the check to be delivered to the seller. Once these last things are complete, you can move into your new home. 

Considerations Unique to Hawaii Home Buying

If you’re wanting to know how to buy a house in Hawaii, there are a few things to take into account that are unique to these islands. 

Hawaii has many microclimates

The weather can vary dramatically from one neighborhood to another. Homes at sea level can be much hotter than homes just a few hundred feet higher in elevation. Rainfall also increases dramatically with elevation and prevailing wind direction. Be sure that you like the amount of rain that you’ll get in your new neighborhood during the wet winter months, before you buy. 

If you’re looking at coastal properties, be sure that the home isn’t at risk of flooding. During storm surges, this type of flooding is becoming more common. Flooding is also a risk to any properties adjacent to flood plains and streams. Flooding during hurricane season is also becoming more common. Homes built in depressions also don’t benefit from our lovely breezes, so they may cost more to cool.

If you’re buying a home on Hawaii island, be aware that mortgage loans and home-owners insurance is difficult to get in lava zones 1 and 2- meaning you may need to pay cash for a property in these areas. Most homes are in lava zones 3 and above and much of the Hamakua coast up to Kohala are in lava zones 7-9, making the probability of experiencing a flow minute.

Wherever you end up buying, good luck in your search. May you find the home of your dreams.