hOW ARE YOU GOING TO PAY FOR YOUR PROPERTY?
Welcome to the world of real estate on the Big Island of Hawaii, where the vistas are as enchanting as the property markets are diverse. The rich tapestry of landforms and lifestyles brings with it an array of opportunities for property buyers, whether you’re looking for a tranquil retreat, a family home, or an investment opportunity. But navigating these enchanting shores can seem like a daunting task without the right guidance. Enter Papakea Collection, your reliable partner in this exciting journey, standing at the helm with expertise and local knowledge, ready to help you navigate the financial waters of buying property on the Big Island.
We understand that when it comes to financing your dream home, the path is often shrouded in the fog of complex terms and industry jargon, making an already stressful process seem almost insurmountable. But fear not, because this blog post, “Paying for your Property,” aims to unravel the intricacies of the process, casting a light on the path, and making your journey towards property ownership in Hawaii an informed and empowering experience.
In this post, we will explore the avenues of financing your property, from the robustness of a cash purchase to the intricacies of securing a mortgage. We’ll talk about first-time mortgages, their workings, and why the allure of a cash offer can sometimes be irresistible. We’ll also delve into the world of local Hawaiian financing and the importance of working with a lender who understands the unique real estate landscape of the Big Island, from lava zones to the historical ‘Great Mahele’.
With Papakea Collection by your side, the journey to financing your property in Hawaii is not a lonely trek, but a shared voyage towards securing your slice of paradise on the Big Island. Here’s to embarking on this journey together, arm in arm, towards the horizon of your Hawaiian dream.
Paying for Your Property
Congratulations on taking the first step toward owning a property on the Big Island. Now that you’ve decided on what kind of property you want, it’s time to figure out how to pay for it. In this section of our guide, we’ll explore the two primary ways of purchasing property: cash and financing.
Cash is King
If you’re fortunate enough to have enough funds saved up, you might consider paying for your new property with cash. This method is straightforward and has several advantages:
– Quick Closing Process: With cash, you can close on a property much faster as you don’t need to wait for a bank or other lender to approve and process a mortgage loan.
– No Interest Payments: Since you’re not taking out a loan, you won’t have to pay interest. Over time, this could save you a significant amount of money.
– Attractive to Sellers: Sellers often prefer cash buyers because they don’t have to worry about a sale falling through due to financing issues.
However, cash isn’t without its drawbacks. Tying up a large amount of money in a single property could leave you short of funds for other investments or emergencies.
Financing Your Property
For many buyers, getting a mortgage is the most viable option. You’ll need to pay a down payment (typically 20% of the property price, though it can vary), and then make regular payments to your lender over a set term.
– Leverage: By taking out a loan, you’re using someone else’s money to buy your property. This allows you to invest in a larger or more expensive property than you could afford with cash alone.
– Build Credit: Regular, on-time mortgage payments can help improve your credit score.
– Maintain Cash Flow: Financing lets you keep your savings for emergencies, other expenses, or investments.
On the downside, mortgages come with interest costs, which can add a significant amount to the total cost of your property over time.
Whether you choose to pay cash or finance your property, it’s important to do what makes the most sense for your financial situation. An experienced real estate professional or financial advisor can help guide you through the process and answer any questions you have. Remember, the goal is to find a payment method that allows you to comfortably afford your dream property on the Big Island.
Is Cash truly King?
A cash offer can often be a more appealing option for sellers for several reasons:
1. No Appraisal Needed: Unlike with mortgage loans, a cash offer doesn’t require an appraisal. This step, needed to protect the lender, often delays the closing process. With cash, the sale can proceed without this requirement.
2. Quick Closing Process: Cash sales typically close faster than financed purchases. Without the need for a lender’s approval, the closing process can often be completed in as little as a week or two, versus the traditional 30-45 days.
3. High Earnest Money Deposit: Cash buyers often put down a larger earnest money deposit to demonstrate their serious intent to purchase. This also suggests that they have sufficient funds on hand to close the deal.
4. Early Verification of Funds: With a cash offer, the buyer typically provides proof of funds early in the process. This can give the seller confidence that the buyer has the necessary resources to complete the purchase.
5. Fewer Contingencies: Cash offers often have fewer contingencies – conditions that must be met for the sale to go through – such as financing or home sale contingencies. This reduces the risk of the deal falling through.
6. Attractive in a Seller’s Market: In a competitive market, cash offers can stand out. Sellers might be more inclined to accept a cash offer, even if it’s slightly lower than a financed offer, due to the certainty and speed of the sale.
While a cash offer can be attractive to sellers for these reasons, it’s essential for buyers to weigh the benefits against the potential drawbacks. These might include tying up a significant amount of money in a single investment and missing out on the potential tax benefits of a mortgage. It’s always advisable to consult with a financial advisor or real estate professional before deciding on the best route for your individual circumstances.
Mattress Money
While it’s technically possible to use cash from jars under your mattress to purchase a home, it’s not generally advisable nor practical. Here’s why:
1. **Paper Trail:** The majority of real estate transactions require a paper trail. This means that your bank needs to verify where your money is coming from to ensure it’s legitimate. Large cash transactions can raise suspicion, as they can be associated with money laundering or other illegal activities.
2. **Financial Safety:** Carrying around large amounts of cash can be risky. Even if you were to bring your cash to a bank to obtain a cashier’s check, you would still be risking loss or theft. Additionally, large deposits of cash into a bank account may trigger a report to the government.
3. **Title Company:** Title companies, who often handle the monetary transaction in a home sale, typically require a wire transfer or cashier’s check for payment. They generally do not accept cash.
4. **Homeowner’s Insurance:** If you’re paying cash, you may be required to pay a year’s worth of homeowner’s insurance upfront at closing, which can be quite a sum.
5. **Investment Opportunities:** Using all your cash for a home purchase might not be the best investment strategy. You might be able to get a higher return if you invest that money elsewhere, particularly when mortgage rates are low.
6. **Seasoned Funds:** ‘Seasoned’ funds are preferred in real estate transactions. This means money that’s been in your bank account for at least 60 days. Sudden large cash deposits may cause problems during the buying process.
Financing your Purchase
Purchasing a home, condo, or vacant land can all be financed, but the process and requirements can vary significantly for each type of property.
Home: When you finance a home, you’re typically getting a mortgage for a property that’s already constructed. The lender has the security of the physical structure as collateral. Mortgages come with various term lengths, but 15- and 30-year terms are most common. Down payment amounts can range, with some programs allowing as little as 3% down.
Condo: Financing a condo can be similar to a home, but there can be additional factors. Lenders often look at the financial health of the condo association and occupancy rates. Condotels, or condo hotels, are a type of condominium that operates as a hotel with a registration desk and cleaning service. Due to the commercial aspect of these properties, financing can be more challenging, often requiring higher down payments and carrying higher interest rates.
Vacant Land: Financing vacant land can be more complex and often requires a higher down payment. Lenders view these loans as riskier because if the borrower defaults, the lender is left with a piece of property they must sell to recoup their money. The information you provided outlines two types of land loans: interest-only and fixed. The interest-only loan allows lower payments for up to 36 months (usually while you prepare to build), followed by a balloon payment. The fixed-rate loan offers steady payments over 10 years. However, many land loans require you to start construction within a certain timeframe. It’s also important to note that the loan-to-value ratio (the amount of the loan versus the appraised value of the land) is typically lower for land loans, meaning you’ll need a larger down payment.
In each case, it’s important to shop around for the best rates and terms, and work with a lender familiar with the type of property you’re buying, especially in unique markets like the Big Island of Hawaii. Always consult with a financial advisor and real estate professional to ensure you understand the process and make the best decision for your situation.
Go Local!
In the complex and nuanced real estate market of Hawaii, it’s especially crucial to work with a lender familiar with the unique characteristics and challenges of the state. Several factors make the real estate and lending environment in Hawaii different from the mainland:
1. **Lava Zones:** Hawaii is home to one of the most active volcanoes in the world, Kilauea, which impacts insurability and therefore mortgage approval. Different parts of the Big Island are classified into Lava Zones, numbered 1 through 9. Lenders often have varying policies on lending in certain Lava Zones due to the associated risk.
2. **Land Court System:** Hawaii has a unique system called the “Land Court” system where land ownership and title matters are adjudicated. This system provides an extremely high level of title assurance, but it can also make the process of getting a loan more time-consuming and complex.
3. **The Great Mahele or Land Division:** This historical event in the mid-19th century marked the transition from communal to private land ownership in Hawaii. Some of the land transactions from this time can impact the title and ownership of properties to this day, making the expertise of a local lender invaluable.
4. **Leasehold Properties:** In Hawaii, you’ll come across a larger percentage of leasehold properties than on the mainland. Owning a leasehold property means you own the buildings and other improvements on the land, but not the land itself. Financing leasehold properties can be more challenging, and terms can be less favorable than fee simple properties.
5. **Homeowner’s Associations and Lease Fees:** Particularly in condos and planned communities, there may be additional fees and rules that lenders need to consider as part of the loan approval process.
Working with a lender who has experience and expertise with these unique elements can help ensure that your loan process goes as smoothly as possible. A lender who understands Hawaii-specific issues can provide appropriate loan products and guide you through the process efficiently, potentially saving you time and stress.
Finding A Lender
Choosing the right lender is an important step in your journey to homeownership. Lenders offer different rates, terms, and types of loans, and have varying levels of familiarity with local markets and regulations. Selecting a lender that is knowledgeable about Hawaii’s unique real estate landscape can make a significant difference in your buying experience.
Here are a few lenders and loan officers we recommend for specific situations:
First-Time Homebuyer: Christie Mitsumura with Mason-McDuffie Mortgage Corporation has a deep understanding of Hawaii’s unique market conditions and can offer tailored advice to help first-time homebuyers navigate the process.
Contact Christie Mitsumura:
– Office: (808) 276-6855
– Fax: (833) 616-2087
VA Loans: Brian Monroe with Hawaii Mortgage Experts specializes in VA loans, helping veterans take advantage of their VA benefits to secure home financing.
Contact Brian Monroe:
– Email: brian@emailhme.com
– Phone: 808-542-7035
Farm and Ag Loan: For those looking to purchase agricultural land or start a farming operation, Linus Tavares with American AgCredit can help you navigate the specialized requirements for these loans.
Contact Linus Tavares:
– Email: ltavares@agloan.com
– Phone: (808) 895-8321
Other local banks that offer mortgages include Bank of Hawaii, First Hawaiian Bank, and Hawaii Federal Credit Union.
The right lender will not only provide you with the loan you need but also serve as a guide, ensuring you understand the process and the nuances of buying property in Hawaii. From understanding island-specific regulations to dealing with unique scenarios like lava zones and the Land Court system, a local lender is an invaluable asset to your home buying team.
Getting started
Getting a loan for a property purchase involves several steps and often starts with a loan officer. Here’s a brief explanation:
A loan officer is a representative of a bank, credit union, or other financial institution who helps customers with loan applications. They are typically the first point of contact when you decide to get a loan. They guide you through the loan process, which generally includes these steps:
Determine Loan Eligibility: A loan officer helps determine your eligibility for a loan. They’ll examine your credit history, employment status, income, and debts to determine how much money you can borrow and at what interest rate.
Preapproval: Before you start house hunting, you can get preapproved for a loan. This involves the lender reviewing your financial situation to determine how much you can borrow. Once preapproved, you’ll receive a preapproval letter that you can show to real estate agents and sellers to demonstrate your serious intent to buy.
Loan Application: Once you’ve found a property you want to buy, you’ll complete a full mortgage application. The loan officer will guide you through this process, explaining what information is needed.
Processing: After you’ve submitted your application, the loan officer will start the processing stage. This involves gathering documentation about you and the property, such as income verification, credit reports, and home appraisals.
Underwriting: The underwriter reviews all the information and documentation collected during processing. They’ll verify your financial information, ensure the loan product is appropriate for you, and confirm that the property’s value supports the loan amount.
Closing: Once your loan is approved, you’ll move to the closing stage. The loan officer will coordinate with you and other parties involved (like real estate agents, title companies, and attorneys) to ensure all paperwork is ready for the closing date. At closing, you’ll sign all necessary documents, and the loan funds will be disbursed to complete the property purchase.
Throughout this process, the loan officer acts as an intermediary between you and the lender, helping to make the process as smooth as possible. They answer your questions, assist with paperwork, and explain the terms and conditions of the loan. They play a crucial role in helping you secure financing for your property.
Cash or Loan you still have to make it happen
With every wave that washes ashore, with every breeze that rustles the palm leaves, your Hawaiian dream home inches closer to reality. Your choices are as diverse as the tropical landscape itself, stretching from the cash-laden comforts of an outright purchase to the strategic pathway offered by a tailored loan.
Your journey to the heart of the Big Island starts with the decision of how to fund your property. Do you go the route of immediate ownership with cash, or do you prefer the longer road of financing? It’s a question that only you can answer, for it’s a choice that is as much about who you are as it is about the home you wish to own.
Navigating the intricacies of real estate financing is much like navigating the waves of our ocean – it takes skill, experience, and a deep understanding of the tides. The ebbs and flows of interest rates, loan terms, and approval processes can be overwhelming for even the most seasoned adventurers. But fear not, for as your real estate guide, the Papakea Collection is by your side, ready to help you charter the best course to your dream home.
Our experience spans the spectrum of property financing, making us well-versed in the nuances and complexities unique to the Big Island. With the Papakea Collection, you’re not just getting a real estate partner; you’re gaining a confidant, a guide, and a friend who will stand with you every step of the way, ensuring your journey to home ownership is as smooth as the Hawaiian sunset.
In this shifting landscape of property financing, knowledge is your compass, pointing you in the direction of the best decision for you and your family. And the journey of knowledge does not stop here. Stay tuned for more in-depth exploration of mortgages in our future blogs, where we delve deeper into the sea of finance, throwing you a lifeline of wisdom in the wide ocean of options.
Remember, the pathway to your dream home is but a decision away. In the spirit of adventure and the pursuit of a fulfilling life, the only question is – are you ready to take that step? If the answer is yes, the Papakea Collection is ready and eager to guide you home.
About the Author
James T. Morrison, R(S)
James T. Morrison is a Realtor with Koa Realty, inc. , and part of the Papakea Collection Sales Team. You can email him directly at:
JTM@Jamesmorrisonhawaii.com or call or text him directly at (808) 209-9906
Licesnse #79190 Realtor
papakeacollection
September 18, 2023