Everything You Need to Know About Buying a House in Hawaii

If you’re dreaming of a life in paradise, buying a house in Hawaii is the first step.
Written by Kara Vanderbeek
Reviewed by Melanie Reiff
Breathtaking beaches, stunning sunsets, and year-round sunshine make
an attractive real estate destination. With increasing property values and a buyer’s market, moving to paradise seems like a no-brainer. 
However, navigating the real estate market can be a daunting task, particularly if it's your first time purchasing a property. Luckily,
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Figure out your finances

The first step in purchasing a property is evaluating your financial situation. If you plan to take out a mortgage on your home, there are several key factors to keep in mind. It's necessary to first assess your credit score and debt-to-income (DTI) ratio to determine what shape you’re in financially. 
Buying a home requires the financial commitments of a down payment, closing costs, and homeownership costs. Before you get lost in the appeal of oceanfront property, take a step back to analyze your financial records to determine what kind of house you can afford

Check your credit score

You need to check your credit score before starting the home buying process. A credit score is a number calculated based on your financial history that signifies to lenders how likely you are to pay back the money that you owe. 
To secure a loan to purchase a property, most Hawaii lenders require a credit score of at least 620. While there are low-credit loan options, you can work to improve your credit score to qualify for a better mortgage by spending less money and paying your bills on time. 

Calculate your debt-to-income ratio

Your debt-to-income (DTI) ratio will impact the type of mortgage that you’ll be eligible for. Mortgage lenders will evaluate your DTI ratio to determine what you’ll be able to afford after taking on a mortgage. 
To calculate your DTI, add up your recurring monthly payments and divide that number by your pre-tax gross monthly income. Monthly payments to factor into your DTI include:  
  • Minimum credit card payments
  • Student loans
  • Auto Loans
  • Child support
  • Personal loans
  • Estimated mortgage payment
The lower your DTI, the more likely you will be approved for a mortgage. Most mortgage lenders will require an after-mortgage DTI of 36%. However, some lenders may approve a DTI of up to 43% if you have a high credit score.  
If you are aiming to have a conventional loan in Hawaii, aim for a DTI of 37%.
Keep in mind that your DTI does not include other non-debt monthly payments such as groceries, utilities, or retirement savings. However, it is important to factor in those payments when you are evaluating what kind of mortgage you can afford with your monthly income. 
Key takeaway Most mortgage lenders will approve a conventional loan if you have a DTI of 37% or lower. 

Determine your down payment

A down payment is an up-front portion of the payment of the total purchase price of your home. Mortgage lenders use down payments as a way to ensure there is an incentive for you to meet the mortgage payments.
For a conventional loan in Hawaii, you will need a down payment of 20%. A loan is typically taken out to finance the remainder of the payment. 
For example, the median cost of a home in Hawaii is $655,433. In this case, you would need 20% of $655,433 to purchase the home: $131,087.
If you are unable to make a down payment, there are other options available that use different means to offset lender risk. 
Government-backed loans, such as Veterans Administration (VA) loans, allow veterans to qualify for a loan with no down payment with the one-time payment of a VA funding fee. Federal Housing Administration (FHA) loans similarly allow for down payments as low as 3.5% with the condition that the borrower pays for private mortgage insurance throughout the term of the loan.
Key takeaway A down payment in Hawaii is 20% of the property’s purchase price. If you’re unable to make the payment, there are other options for loans.

Prepare for closing costs and other fees 

Just when you think your home purchase is complete, the additional services of closing a real estate transaction prove otherwise. Closing costs typically amount to 2-5% of the loan and include such services as:
  • Appraisal fees
  • Home inspection fees
  • Loan application fees
  • Property taxes
  • Title insurance policies and fees
  • Homeowner’s insurance
Ensure you have enough savings to cover the closing costs.

Look for homeowners insurance 

Homeowners insurance is an ongoing expense that you will need to factor into your monthly or yearly payments. 
Luckily, Hawaii is the cheapest state to buy homeowners insurance, with an average cost of just $376 per year for $250,000 in coverage. Compared to the average cost in the United States of $1,387 per year, the low prices in Hawaii are reason enough to make the move. 
Nevertheless, you shouldn’t just buy the first homeowners insurance policy you see. Compare rates from at least three different insurance companies to find the lowest rate (hint: you can usually find the lowest rate from your
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Key takeaway Hawaii is the cheapest state for homeowners insurance.

Get preapproved for a mortgage 

To start shopping for your dream Hawaii home, you will first need to get preapproved for a mortgage
Having a mortgage pre-approval letter is one of the best ways to demonstrate to sellers that you are a serious and financially qualified buyer. In addition, pre-approval will give you, as the buyer, the confidence that you are financially capable of making an offer.
Pre-approval involves an extensive investigation into your finances by your lender to determine your capability of closing a sale. The pre-approval essentially guarantees that a lender will issue you a mortgage. 
The process may take as long as 7-10 days and will require you to fill out an application and produce such documentation as proof of income, tax returns, and pay stubs, along with a list of all debts you are currently paying. 
After assessing all of your documents, a lender will determine how much of a loan you qualify for and in what amount. The lender will then issue a pre-approval letter stating the finance parameters. 
Key takeaway Apply for lender pre-approval to demonstrate your financial qualifications to sellers.

How to pick the right mortgage in Hawaii

When it comes to picking the right mortgage, consider different lenders and compare interest rates. 
Buying a home is a serious financial commitment, and having the right lender can make or break your home buying journey. You want a lender that will work in a timely manner to ensure your transaction closes smoothly and actively provides all necessary information and documentation. 
After your transaction has closed, you will want to be confident in the mortgage you’ve chosen. The two main factors to consider when picking a mortgage are the mortgage terms and interest rates
  • Long-term mortgages (30 years): Lower monthly payment, higher interest rate 
  • Short-term mortgages (15 years): Higher monthly payment, lower interest rate
Compare different lender options and rates and find what is best suited to you.

Look for a house

Finally! You’ve evaluated your financial situation and you’ve been pre-approved for a mortgage. It’s time to begin house hunting for your dream Hawaii home!

Pick your city or neighborhood

When choosing your city and neighborhood, decide first which factors are most important to you, such as the cost of living, the city’s population, the cultural atmosphere, and the location’s climate. 
Consider the lifestyle you want to lead in your new home. Are there parks and schools nearby? What are the crime rates? What is the nightlife scene? Is the city walkable? 
Advise your real estate agent of your desired location, your ‘must-haves’, and the parameters of your budget. Trust your agent’s expertise and view properties of interest. 

Buyer’s market vs. seller’s market

Get a sense of whether it’s a buyer’s or seller’s market. 
If the supply is high and demand is low, such was the case in Hawaii in June, you’re looking at a buyer’s market. Conversely, February in Hawaii saw 19% fewer homes available, which heightened buyer demand and created a seller’s market
Shopping in a buyer’s market may impact your ability to be choosy when it comes to finding the right home. In Hawaii, buyer demand is heavily influenced by the seasons, with the  highest number of houses being on the market in the summer, and the lowest number being on the market in the winter.
If you have the flexibility, do your research to decide what time is best for you to begin your housing hunt. Either way, it's helpful to know what the market looks like at the time you’re buying, as it may impact the price of your offer and the speed with which you make one.

Find a real estate agent  

Having a real estate agent to help you find your home, inform you about the home buying process, and support you in making an offer can change your home buying journey for the better. 
Before choosing an agent, it may be helpful to research their years of experience, their number of transactions in the past year, their reviews, and their experience in your price range and neighborhood

Make an offer

You’ve found the house of your dreams! Now, it’s time to make an offer. In some cases, you may need to move fast and sweeten the deal to convince the seller to sell to you.
In Hawaii, houses typically stay on the market for 73 days before getting an offer. If the house you are looking at has been on the market for around that many days, be sure to make an offer soon. Depending on the season in Hawaii, you may need to make an offer sooner than that if houses are selling quickly. 
If all of your other financial paperwork is in order, you should be all set to make an offer and take your dream home off the market!

How to save on homeowners insurance

With all of the other paperwork that goes into buying a house, insurance may not be the first thing on your mind. But you’ll need to buy homeowners insurance to protect your new property. 
Luckily, the insurance shopping process is quick and easy when you’ve got
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The exact amount will vary depending on where you’re buying, how big of a down payment you can make, and what kind of mortgage you qualify for. With average Hawaii home values around $655,433, it’s wise to start with at least $132,000 in savings.
Ideally, you should have a credit score of at least 620 to buy a house in Hawaii. However, you may still qualify for an FHA loan or a VA mortgage if you have a high credit score.
If you’re looking for affordable property in Hawaii, Hilo and Waihee-Waiehu rank as the cheapest places to live in the state. Honolulu, on the other hand, is widely recognized for having the greatest liveability anywhere in the state.
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