How to Buy a House in Hawaii: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration and planning. In Hawaii, the average home value is $858,569, which is significantly higher than the national average of $362,481. This price difference highlights the need for potential homebuyers to be well-prepared financially when considering a purchase in the state.

Understanding down payment assistance programs, mortgage types and state-specific regulations is key to a smooth homebuying journey in the Aloha State. MoneyGeek has compiled pointers to help you navigate the process in Hawaii, from saving for a down payment and selecting the ideal location to finding the best financing option for your needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Hawaii for the second quarter of 2024 was 1.4%. The homeowner vacancy rate measures the proportion of the homeowner housing inventory that is vacant and available for sale. It provides insights into the housing market's supply-demand balance.

Hawaii's homeowner vacancy rate of 1.4% indicates high demand for limited housing inventory beacuse a stable rate is typically around 2%. This suggests that homebuyers face a competitive market with fewer options available. For homebuyers in Hawaii, this means being prepared to act quickly and possibly face higher prices due to the limited supply.

Before buying a house in Hawaii, closely examine your financial and credit history. This is important because the stronger your financial profile, the better your chances are of getting approved when applying for a mortgage.

Your credit score significantly influences the mortgage loans and interest rates you qualify for. A higher score makes you more likely to secure a reasonable rate. As of the third quarter of 2023, the average credit score in Hawaii was 732, according to Experian.

If your credit score falls in the "poor" range of 300 to 579 on the FICO scale, it's still possible to buy a house, though getting approved for a mortgage may be challenging. Check the table below to see which mortgage type is ideal for you based on the minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) is a key metric lenders use to evaluate how much of your monthly income goes toward debt payments. This helps them determine the amount of mortgage debt you can realistically manage. In Hawaii, the average mortgage debt stood at $398,670 in the third quarter of 2023, according to Experian. This figure highlights the substantial financial responsibility that comes with homeownership in the state.

Your DTI includes monthly debt payments such as mortgages, credit cards, student loans and other obligations. Use our debt-to-income ratio calculator below to see your front-end DTI, which focuses on housing-related debt, and your back-end DTI, which encompasses all debt. This tool will also help you calculate your total monthly debt payments.

Buying a house beyond your financial means can lead to significant stress and financial instability. To avoid this, use the 28% rule as a guideline, which advises not spending more than 28% of your monthly income on mortgage payments. This rule can help ensure that your home remains a place of comfort, not financial burden.

The median annual income in Hawaii as of April 2024, according to the U.S. Bureau of Labor Statistics, was $50,510. This translates to a gross monthly income of $4,209 before taxes. Applying the 28% rule, you should aim to spend no more than $1,179 on your monthly mortgage payment. This approach can help you maintain financial stability while enjoying your new home.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Hawaii.

A down payment is the initial payment made when purchasing a house, and it plays a crucial role in the home buying process. Typically, buyers are expected to put down 20% of the home's purchase price. This can be a significant hurdle for many potential homeowners. For instance, the average home value in Hawaii is $858,569, which means a 20% down payment would be $171,714. For homes above the average value, such as those priced at $900,000, the down payment would be $180,000.

Fortunately, saving up for a 20% down payment is not a requirement for all homebuyers. Many mortgage types offer the flexibility of lower down payments. Government-backed loans like VA loans require no down payment, while FHA loans require only a 3.5% down payment. These options can make homeownership more accessible to a broader range of buyers.

If you decide to put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.

Hawaii offers several down payment assistance programs to support potential homeowners. These programs aim to make homeownership more accessible by reducing the upfront financial burden. For those interested in exploring these options, the Hawaii HomeOwnership Center provides specific assistance programs. Check out the table below for more details on the available down payment assistance programs in Hawaii.

Finding the right location in Hawaii involves balancing several factors. Consider the average house price in different areas and how close you want to be to family, friends and work or school. Proximity to public transportation, parks, restaurants and shopping centers can also influence your decision. Assessing these factors will help you identify a location that aligns with your lifestyle and needs.
The cost of living significantly impacts your decision when choosing a new home. According to the Missouri Economic Research and Information Center (MERIC), Hawaii's cost of living index for the first quarter of 2024 was 186.2, which is well above the national average of 100. This means expenses in Hawaii are generally higher than in most other states. Consider the following essential expenses:

• Food
• Healthcare
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Hawaii. They provide the advice you need, help manage paperwork and offer an expanded list of property options that you might not access on your own. Additionally, they can recommend other service providers like title companies and inspectors to streamline the home-buying process.

When finding a real estate agent, ensure you do your due diligence and interview agents experienced in the neighborhoods you're interested in.

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

Purchasing a home in Hawaii involves finding a mortgage that aligns with your financial capabilities. You'll encounter several options, including conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. You can select from 10-year, 15-year, 20-year or 30-year terms and decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Choosing the best financing option can enhance your approval odds and result in long-term savings.

Interest rates on a mortgage can change daily due to factors like the type of mortgage, the lender and the economy. While interest rates reflect the cost of borrowing money, the annual percentage rate (APR) provides a more comprehensive view by including both the interest rate and additional fees. This distinction is important because the APR shows the true cost of borrowing, allowing homebuyers to better compare different loan offers.

As of October 2024, the APR for a 30-year fixed conforming loan in Hawaii is 5.86%. The current mortgage rates in Hawaii by mortgage type are shown in the table below.

Before purchasing a home in Hawaii, obtaining a mortgage pre-approval can be a strategic move. This process involves a lender assessing your financial situation to determine the loan amount you qualify for. Receiving a pre-approval letter not only gives you a clearer picture of your budget but also positions you as a serious buyer in the competitive Hawaiian real estate market. Typically valid for 60 to 90 days, this letter can streamline your home buying process by allowing you to act quickly when you find the right property.

To get pre-approved, you will need to submit several documents to your lender, including:

• Proof of income (such as pay stubs or tax returns)
• Employment verification
• Credit history
• Bank statements
• Identification documents Understanding the difference between mortgage pre-approval and prequalification can clarify your path to homeownership. Pre-approval involves a detailed examination of your financial background, offering a more accurate loan estimate. In contrast, prequalification is a preliminary assessment based on basic information you provide, giving you a general idea of what you might be eligible for without the commitment of a full application.

Home inspections are highly recommended in the homebuying process in Hawaii due to their ability to uncover potential issues in a property. Inspectors typically examine various parts of the house, including structural components, electrical systems, plumbing and roofing. The inspection report usually includes a detailed assessment of the home's condition and any necessary repairs. This information can help homebuyers make informed decisions and potentially negotiate better terms.

For example, an inspection might reveal significant issues such as foundation cracks or outdated electrical wiring. These findings could negatively affect the home's appraisal, potentially reducing its market value. In some cases, the buyer might decide to rescind their offer if the inspection results indicate costly repairs or safety concerns. This highlights the importance of understanding the property's condition before finalizing a purchase.

In Hawaii, home inspections are not regulated, and there is no requirement for home inspectors to be certified. Despite this, many professionals in the field choose to obtain certification through organizations such as the American Society of Home Inspectors (ASHI) or the International Association of Certified Home Inspectors (InterNACHI). These credentials can provide reassurance of an inspector's expertise and commitment to industry standards.

If you're looking for a home inspector in Hawaii, it's wise to ensure they are licensed. Consider checking what other clients have said by reviewing online feedback and asking for references. These steps can help you gauge the inspector's reliability and quality of service.

Home appraisals play a pivotal role in the homebuying process in Hawaii. They provide an unbiased estimate of a property's market value, which helps buyers, sellers and lenders make informed decisions. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost in Hawaii was $500.

While both inspections and appraisals are essential in the homebuying process, they serve different purposes. A home appraisal evaluates the property's market value, whereas a home inspection assesses its condition. Lenders require appraisals to ensure that the loan amount does not exceed the property's worth, thus protecting their investment.

Closing is the final step in buying a house in Hawaii, marking the transfer of ownership and the moment you receive the keys. Your lender must provide a closing disclosure document three days before the official closing. This document outlines loan terms, monthly payments and closing costs. Plan a final walk-through with your real estate agent near closing day to ensure the property is in the expected condition.

During closing day, you'll find yourself reviewing and completing a significant amount of paperwork. Understanding each document will help you navigate this process smoothly. Here are some of the key documents you will need to sign:

• Final loan application: This document finalizes the terms of your mortgage loan, ensuring that all agreed-upon details are accurate. It is essential to review this document carefully to confirm that everything matches your expectations.
• Deed transfer: This legal document transfers ownership of the property from the seller to you. Ensure that the deed is correctly filled out to prevent future disputes.
• Promissory mortgage note: This note is your promise to repay the mortgage loan under the specified terms. It outlines the repayment schedule, interest rate and other critical loan details.
• Homeowners insurance in Hawaii: This insurance policy protects your new home against potential risks, such as natural disasters and accidents. In Hawaii, having comprehensive coverage is particularly important due to the state's unique environmental conditions.

Closing costs are fees paid at the end of a real estate transaction. In Hawaii, the average closing costs are $5,362, according to the National Association of Realtors (NAR). These costs include several fees:

• Appraisal fee: This fee covers the cost of evaluating the property's value.
• Title search and insurance fee: This ensures the property title is clear and protects against future claims.
• Escrow deposit: Funds held to cover property taxes and insurance premiums.
• Prepaid costs: These are upfront payments for items like homeowners insurance and property taxes.
• Other closing costs: Additional fees such as recording fees and attorney fees.

If you are a first-time homebuyer, learning the different first-time homebuyer programs in Hawaii can also help you achieve homeownership faster.

Buying a house in Hawaii is a long-term financial commitment. We answered some frequently asked questions about buying a house in Hawaii to kickstart your homebuyer journey.