If the Beach is Calling Your Name, Answer It — Follow These Steps for Buying a Home in Hawaii

If you’re ready to call the majestic cliffs and pristine beaches of Hawaii “home,” you may be in luck. The beautiful scenery, combined with a rise in remote work capabilities, drew many homebuyers to the islands of Hawaii in 2020 and 2021. But more recently, the market has shifted to favor buyers, with a 17.07% decrease in year-to-date home sales. That means now is a great time to buy in the Aloha State!

But beginning the journey toward home ownership in Hawaii needs to be approached with more than a great cup of Kona coffee. In order to get the inside scoop on buying a home in Hawaii, we spoke with Todd Hudson, a top real estate agent in Kihei, Hawaii on the island of Maui. With fifteen years of experience and a track record of closing 78% more homes than the average local agent, Hudson knows the ins and outs of Hawaiian homebuying better than most.

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Steps to buying a home in Hawaii

Let’s dive into the steps of buying a house in Hawaii:

1. Assess your readiness

Before you start looking for homes in Hawaii, you want to determine if you’re ready to purchase one. Consider factors such as how long you plan to be in the area, if you have steady employment, and if you have enough money saved for not just the down payment, but for closing costs, maintenance, property taxes, and more. Homebuyers in Hawaii pay $7,463 on average in closing costs when purchasing a home.

During this time, review your credit score and determine if it’s considered excellent, good, fair, or poor. Typically, the higher your credit score, the lower your interest rate will be, which saves you money over the life of the loan. You may want to pay off any collections accounts, dispute errors on your credit report, and pay down your credit card balances before you start shopping for a home.

If you’re moving from out of state, Hudson says it’s also important to assess the reality of moving to the islands. “You’re going to be 2,500 miles away from the easiest point to get back into the rest of the mainland,” he says. That kind of distance isn’t feasible for everyone, so it’s something you’ll need to consider before buying property in Hawaii.

2. Saving for your down payment

The average home price in Hawaii is $910,349, as of September, 2022, though prices vary significantly between the various islands. In general, you can expect to spend somewhere around that number depending on what part of Hawaii you’re purchasing in, the home’s age and condition, and the size of the property, among other factors.

Different loan programs will require different down payment amounts, but you do not always need to put 20% down when buying a home. A survey completed by the National Association of Realtors found that first-time homebuyers put just 7% down on average in 2021.

Consider the following down payment assistance programs in Hawaii:

HHOC Down Payment Assistance Loan

The HHOC Down Payment Assistance Loan acts as a sort of second mortgage by loaning you up to $75,000 for a down payment and other upfront costs of buying a home. The benefit of using this assistance comes in the form of avoiding mortgage insurance requirements (which can add a significant amount to your monthly payment). Applicants must meet certain requirements, such as being a first-time homebuyer and having a minimum credit score of 700. Repayment of the assistance loan comes at a 5% interest rate over 15 years.

Honolulu Down Payment Loan Program

The city and county of Honolulu offers a similar program. First-time homebuyers who meet certain residency, income, and credit criteria can apply for a loan of up to $40,000 to help with a mortgage down payment. This loan comes with no interest and no fees, and the total sum owed can be reduced by $2,000 for each year that you live in the home.

Hula Mae Mortgage Loan Program

The Hawaii Housing Finance and Development Corporation (HHFDC) helps first-time homebuyers secure loans at low interest rates through the Hula Mae program. Similar to the Fannie Mae program, these loans are secured through participating lenders. The program also allows for down payment assistance of up to 3% of the purchase price, with terms varying by lender. To qualify for Hula Mae, your household income must fall below certain published limits.

3. Get preapproved for a mortgage

Getting preapproved for a mortgage will help you determine how much you can afford, which will then inform your home search. It’s always smart to shop around for the best rates and terms, so be sure to research a few different lenders during this process.

You can also ask family, friends, your buyer’s agent, and attorneys for mortgage lender recommendations. When choosing a mortgage lender, ask for a detailed cost breakdown, review the terms you are being offered, and compare loan types.

According to the US Consumer Financial Protection Bureau (CFPB), there are three general categories of mortgage:

Conventional

Conventional loans, the most popular type of mortgage loan, are loans that are not backed by the federal government. Under the conventional loan umbrella are two subcategories called “conforming” and “non-conforming.” Conforming loans are given to buyers who fit into the qualification guidelines set by the entities Fannie Mae and Freddie Mac, who purchase loans after they are originated.

Non-conforming loans are for borrowers who do not fit into the guidelines set by Fannie and Freddie and are not eligible to be purchased by them — jumbo loans are an example of this because they offer loan amounts above the limits set by Fannie and Freddie.

FHA loans

FHA loans are geared toward borrowers with lower income and have more lenient credit score and down payment requirements than conventional loans. These government-backed loans can be a great option for borrowers who meet the requirements, however, they do require mortgage insurance.

Similar to conventional conforming loans in this way, FHA loans have loan limits that vary from county to county. For example, in Kauai, HI the maximum loan amount is $845,250, while in Honolulu, HI the loan limit is $747,500 for single-family homes.

Special programs

VA loans: For veterans, service members, and surviving spouses. Loans backed by the VA offer 0% down payments for those who qualify. Different lenders will have different requirements, however, VA-backed loans do not have a universal maximum DTI requirement.

USDA loans: These loans are backed by the United States Department of Agriculture and are for lower income borrowers in “rural areas.” To determine if the area you are purchasing in is eligible for a USDA home loan, use this eligibility map. These loans also offer 0% down for qualified borrowers.

Hudson cautions that not every lender is created equal in Hawaii. “You should probably use a lender who’s based in the state, because they’re going to know some of the nuances between our properties. We’ve had a lot of deals with some of these out-of-state lenders as well as purely online lenders, and they kinda mess up the deal in the last hour.”

4. Research the market and determine where you would like to buy

Now that you know more about preparing to purchase a house and down payments, it’s time to decide where you want to live. Consider work commute times, average house prices, and things to do in each area that you’re thinking about living in.

Some great places to consider when buying a house in Hawaii include:

Oahu: Oahu is home to both the bustling metropolitan center of Honolulu as well as more rural sections like the popular North Shore. Buyers who want the best of both worlds –– city conveniences and countryside serenity –– may find that Oahu is the most logical choice. The median home price in Oahu is $739,000 and rising, indicating stable growth in real estate investments over time.

Kauai: This smaller island is known for its natural beauty and laidback lifestyle. With a population less than 74,000, Kauai exudes a small town vibe that places greater emphasis on community interaction than on cosmopolitan pursuits. While the median home price of $975,000 is significant, the median household income of $82,818 is also significantly higher than other parts of the country.

Maui: The vacation destination of choice could be your everyday getaway. Maui is known for pristine beaches and untouched natural beauty. With a small population around 164,000 and nearly 74,000 daily visitors, tourism is obviously a major industry. Buying in Maui isn’t cheap, though; the median home price is $1,200,000 and climbing steadily with a year-over-year increase of more than 32%.

The Big Island: The island of Hawaii, also known more commonly as simply The Big Island, is the most affordable housing area of Hawaii, with a median home price of $540,000. Residents of The Big Island enjoy a wonderful array of natural attractions including rainforests, volcanoes, and beaches. And the mid-sized city of Kona can scratch any itch you may have for restaurants and shopping!

For those less familiar with the Hawaiian islands, Hudson recommends renting for a few months to get better acquainted with each island’s flavor. “Every island actually has a very different vibe. If you’re looking for that big city excitement, only Oahu will give that to you. The Big Island and Kauai shut down right around 6:00 or 7:00, and Maui will only stay open until around 10:00.”

5. Find a local Hawaii agent

Real estate agents almost always appreciate it when their clients come to them to start home shopping after getting preapproved for a mortgage. This typically means that a buyer is ready to go and can start making offers. Choose a knowledgeable agent that specializes in representing buyers in the area you want to purchase in.

Your buyer’s agent will be able to help you create a wishlist, set up viewing appointments for you, tell you more about what’s going on in the neighborhood, negotiate on your behalf, and connect you with other vendors such as a title company, insurance agent, and home inspector. Real estate agents are also incredibly knowledgeable on the homebuying process as a whole and can hold your hand throughout the process to keep closing on track.

6. Start shopping for homes in Hawaii

Hudson says there’s really no bad time to begin shopping for homes in Hawaii. “On the mainland, spring and summer are the best time for families to move because of school and things like that. A lot of our schools are year-round, so it doesn’t matter. It’s just kind of whenever you’re ready.”

As you’re shopping, you may notice a common thread in Hawaiian architecture. During the 20th century, many builders adopted a “Hawaiian plantation style,” characterized by exposed beams, low roofs, large lanais, and other elements that blend into the lush environment.

Other popular styles include mission style bungalows and traditional ranches. Many homes have a post and pier foundation –– which allows for increased air flow and easy access to pipes and wiring –– though newer builds may have adopted the mainland’s slab foundations.

Condominium living can also be a good option for buyers who prefer a low-maintenance lifestyle. Condos are more plentiful in developed areas, of course, so you’ll have to determine whether or not the location fits your needs.

Hudson notes that many out-of-state buyers choose to first buy a vacation rental before transitioning full-time to the islands. “It’s a really good way to see if it’s going to work for you. You can receive rental income, and it gives you an idea of what part of the island you want to live in.”

7. Make a strong offer

Working with your buyer’s agent to craft a winning offer can sound overwhelming. In competitive markets, cash offers could be more likely to be accepted by sellers with multiple interested buyers. While it is not always recommended to completely waive contingencies to impress a seller, you might consider pairing down to just the inspection contingency and financing contingency to remain competitive. Get creative with your offer — you may want to offer a larger earnest money deposit, schedule a quick closing, or even consider letting the seller rent the house back from you for a certain period of time.

Hudson says that the current market in Hawaii may allow for some price negotiations. “You can negotiate right around 1.5% off of the list price right now, depending on how the sellers price it. So you have a little bit more negotiation room than ever before, especially on houses. On condos it’s the exact opposite, just because we’re having a shortage of inventory there.”

Components of an offer when buying a house in Hawaii include:

• Purchase price
• Closing date
• Earnest money deposit amount
• Contingencies: Financing, home inspection, and appraisal
• Closing cost stipulations: Who pays for what, and if you’re asking the seller for a credit to use toward closing costs
• Home warranty
• Personal property: Such as appliances or furniture

8. Send your earnest money deposit

Your earnest money deposit, also known as a “good faith deposit,” is an amount of money you agree to pay the seller to indicate that you are serious about purchasing the home. This is usually between 1% and 3% of the purchase price. However, a higher deposit can be more attractive to sellers and make your offer stand out in competitive markets.

Whether or not you get your earnest deposit money back if you decide to back out of the sale depends on the contract. If you decide to back out of the purchase for any reason not specified in the contract, you could forfeit your earnest money. Be sure to review the contract with your real estate agent and attorney before making any decisions.

9. Order a title search

Ordering a title search can be done anytime after your offer is accepted, but it’s a good idea to do it as soon as possible because it may take a couple weeks for the title search to come back, especially if the title company is backed up. Who customarily chooses the title company can vary by state and even county — but if it is the buyer’s choice, your real estate agent or mortgage lender will likely have a recommendation.

The title company will issue a preliminary title report that will be reviewed by all parties including your lender and will include items such as property tax information, easements, CC&Rs, deed restrictions, liens, and any judgments against the title of the home. Any liens, encumbrances, or judgments against the property will need to be removed before the buyer can close on the property.

Hudson says, “We’re an escrow state, meaning you will be conveyed the property free and clear of all encumbrances, which is awesome. That’s why you absolutely should be using a title company on every single transaction.” He goes on to add, “Knowing if the property is a leasehold or fee simple is going to be another really important factor.”

10. Shop for homeowners and specialty hazard insurances

Homeowners insurance is always recommended and it is almost always required if you’re financing your home with a mortgage. Fortunately, homeowners insurance rates in Hawaii are among the lowest in the nation. The average yearly cost of homeowners insurance in Hawaii is $582.

Many Hawaii policies will come standard with hurricane protection (often with a separate deductible), but some will require supplemental hurricane coverage. Be sure to read your quote carefully and inquire about hurricane coverage as needed.

Also, take a look at your flood risk. If you’re in a FEMA flood zone, your lender will require flood insurance. The average cost of flood insurance in Hawaii is $679.18.

11. Order inspections and appraisal

If you’re applying for a mortgage, your lender will most likely order the appraisal and you will pay for it. You will be responsible for ordering your own inspections with the help of your buyer’s agent, again, at your own cost. Your agent can recommend a licensed home inspection company if you don’t have one. The home inspector will schedule a date and time to inspect the house and depending on its size, it may take a couple of hours to complete.

Some common issues in homes in Hawaii include:

• Electrical problems
• Leaky pipes or valves
• Foundation issues
• Crawl space integrity
• Structural issues

Hudson also recommends a termite inspection for buyers in Hawaii. “Since we’re in a climate that never really gets cold, those little critters don’t die off. So you want to see if they’ve done any damage.”

12. Negotiate repairs

Remember that everything is negotiable. If you have an inspection contingency in your contract, and the inspection report comes back with tens of thousands of dollars of necessary repairs, it’s time to negotiate.

Talk to your buyer’s agent and come up with a plan for what to ask for during negotiations. Do you want a credit for the leaky roof or would you rather a licensed contractor repair it prior to settlement? If the house needs two new toilets, are you willing to walk away if the seller refuses to budge during negotiations? Keep the bottom line in mind, but don’t nitpick. Home inspectors are meant to be thorough. Focus on major repairs that need to be done ASAP and are going to be costly.

13. Final walkthrough

This is to verify that agreed-upon repairs have been completed and the condition of the home is satisfactory. The final walkthrough is usually done a day or two before the closing date. With the help of your agent, check that all plumbing, electrical, and HVAC units are on and working. If personal items such as the dining room chandelier and the washer and dryer were included in the contract, make sure they’re still in the house.

If you find that the necessary repairs were not made, or that there were damages left behind by the seller, notify your agent immediately so they can rectify the situation before closing.

14. Closing time

Hawaii is an escrow state, which means that all funds and paperwork need to be received by a third party –– the escrow company –– a few days prior to closing. Hudson describes the process like this:

“When you sign the actual paperwork, the money and the recording go to [the State Bureau of Conveyance in] Oahu. It takes somewhere between twenty-four and forty-eight hours of business time to get recorded. At the time of recording –– which usually happens at 8:00 in the morning everyday –– that’s when you would get your keys. So it can be somewhere between a one-to-two day difference between the time you sign and put all your money into escrow until the time we get your keys.”

Ready to buy a home in Hawaii? As you can see, the process is somewhat straightforward, but it does have a bit of nuance as well. Let HomeLight’s agent match tool align you with someone who can help take the guesswork out of buying in Hawaii.

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