Buying Your First Home On O’ahu? Here’s What You Need To Know
I genuinely enjoy working with people who want to invest in a new home on O’ahu. And as a Realtor dedicated to helping you achieve your real estate goals, it’s always a pleasure to see you excited and happy when moving into a home that you’re thrilled to own. For this reason, I’ve been inspired to write this article, which is based on frequently asked questions from clients. Many homebuyers on O’ahu do not know all the opportunities and programs available to help them own a new home. So… how to reduce the stress of buying a new home and maximize the chance you’ll be thrilled once you own it?
First, and most importantly…
For whatever reason (I’ve been guilty of this as well), when starting the home buying process, many people miscalculate the mortgage amount they will qualify for. Because of this, it’s crucial that you speak to a lender and get pre-qualified for financing.
Why? First, your time is your most precious commodity, and I’d like to keep you from potentially wasting it. Secondly, I’m trying to save you from experiencing frustration and disappointment from “falling in love” with a home and then later learning you can’t get financing for it. Lastly, if there are ways to improve your credit score or financing eligibility, a quality mortgage officer will advise you of them.
See If You Qualify For A Mortgage Credit Certificate (MCC)
A mortgage credit certificate is a tax credit given by the IRS to certain homebuyers. The benefit of an MCC is that rather than using the mortgage interest you pay annually as a deduction, a portion of the interest becomes a tax credit. This helps home buyers qualify for a higher loan amount by reducing their tax liabilities. To learn more about MCCs, here is a helpful article. To determine if you are eligible, talk to a participating lender from this list, or contact me for a referral to a qualified mortgage officer.
Be Careful With Your Finances
If you are relying on bank financing to purchase your home, be especially careful with your finances until you own your new home. Banks love stability as they correlate this with lower risk in lending. Therefore, here are some things you should avoid to maximize your borrowing power.
- Applying for new credit
- Making A major purchase
- Maxing out a credit card
- Falling behind on paying bills
- Closing a credit card account
- Changing or quitting your job
- Co-signing on a loan
- Making large or unusual bank deposits (unless you can fully document them)
If you are in need of a quality lender, contact me as I work with several highly experienced mortgage officers who offer excellent customer service.
The Difference Between Leasehold and Fee-Simple
When home shopping online you might think you’ve found the deal of a lifetime when you see an oceanfront condo selling for under $100,000 in Kahala. Welcome to Hawai’i and leasehold properties. In Hawai’i, there are two types of property ownership — leasehold and fee simple. Leaseholds can be a complicated topic but below is a brief overview.
Most important thing to know is a buyer of leasehold property does not own the land. The owner of a leasehold property (lessee) only has the right to use and enjoy the land for a pre-determined amount of time. At the end of that time, the land, and it’s improvements, revert back to the fee-simple landowner (lessor), unless new leasehold terms are agreed upon. Also, the lessee pays a ground rent to the lessor.
These days, the most commonly found leasehold properties on O’ahu are condominiums or townhomes. However, there are still leasehold single-family properties located throughout the island.
Fee Simple (Fee Simple Absolute)
This is the best type of property ownership. This is because ownership includes the land, as well the improvements on the land. To state it simply — this form of ownership gives you the utmost control of the property. As an owner of a fee simple estate, you are entitled to use and enjoy the property as you desire. The only restrictions are by zoning laws, covenants, deed, or subdivision restrictions. You can also sell, trade, lease, or devise it as you see fit. Lastly, you will be responsible for property taxes and any mortgage expenses and maintenance fees.
Get Your Property Tax Exemption
If the home you own on O’ahu is your primary residence, and you reside there for a minimum of 270 days per year, you qualify for a property tax exemption. How does this benefit you? Well if you are under the age of 65, currently $80,000 will be deducted from the assessed value of your property. You will then pay property taxes on the balance. If you are over 65 years of age, your deduction is currently $120,000. A few key things to know:
Ownership Must Be Recorded by September 30th
In order to qualify for the tax exemption for the upcoming year, your ownership must be recorded at the Bureau of Conveyances, State Department of Land and Natural Resources in Honolulu on or before September 30th of the preceding year. Leasehold properties do qualify if the lease term is 5 or more years and the lease states that lessee is responsible for property taxes.
You Must File a Claim
To obtain your home exemption, you need to file Form P-3 with the Real Property Assessment Division on or before September 30th. Tax exemptions are not given to property held by an LLC.
Take Advantage Of Your VA Benefits
If you are active-duty military, veteran, reservist, or a surviving spouse, the Veteran Affairs (VA) Home Loan program offers you a wonderful opportunity to buy a home. The reason is no down payment is required as long as the purchase price does not exceed the VA loan limit. And you can purchase either a home, condo, or small multi-family property with a VA loan. Also, since the loan is guaranteed by the Federal Government, borrowers are not required to pay private mortgage insurance (PMI). To learn more about the VA program, read my article here.
Consider An Energy Efficient Mortgage (EEM)
An energy efficient mortgage allows you to finance energy efficient improvements of your home. If purchasing a new home, you can borrow the funds specifically to make energy-saving improvements. These costs would just be added to your new home mortgage. Also, if you already own a home, you can still apply for an EEM. If approved, the energy efficient improvements expenses will simply be added to your current mortgage. To learn more about EEMs as well as current rebates in Hawai’i, click here.
Lastly, Get Clear And Have A Plan
To increase the likelihood that you’ll love your new home, make a plan and determine the features you most desire. Here are some questions to ask yourself. It’s also beneficial if you share your answers with your Realtor.
- Why do you want to own a home and how soon do you want to buy?
- What features of your current home would you like to change?
- What features do you like most about where you currently live?
- How long do you expect to live in or own the property?
- What are you trying to improve in your life by moving?
- What do you most desire in your new home, yard, and neighborhood?
- Where on the island do you want to live?
After reading this article, I hope you now feel more prepared to buy a home on O’ahu. However, maybe you have more questions about buying a home in Hawai’i? Contact me at any time. I’m here to serve you and look forward to helping you achieve your real estate goals.