Shopping for a new home can be exhilarating! Browsing MLS listings and going to open houses is the fun part! There’s a little bit of voyeur in all of us, so it’s a thrill to see what the inside of various homes look like, and to imagine your future there. But often there is so much unknown territory to navigate — with so many potential pitfalls along the way — that you may feel like you’re hiking a set of intersecting trails without a map or GPS.
Once you’ve found a home that checks all of your boxes, that’s when things can get a bit complex. First, there’s the legalese of offers and counter offers, and the myriad options for securing financing, not to mention the intricacies of appraisals and escrow. For those who aren’t in the industry, the whole process can sometimes seem daunting. Just thinking about it makes you want to take a nap in the hammock in your backyard. But then you remember that you don’t have either a hammock or a backyard. So that’s when you set out afresh to find two pretty, sturdy trees that’ll support your weight, and a beautiful back garden that you can call your own.
One of the most common questions we are asked as industry experts is “what are the differences between using a mainland bank and a local bank?” Here’s what our team and some local lenders came up with to help you navigate this one aspect of the home buying process.
Mainland Lenders vs. Local Lenders
One of the key things to consider is local marketplace knowledge. Local lenders may be more familiar with the island or neighborhood where you’re looking to buy a home, and this can be advantageous. They may have a clearer picture of the value of the home you’re interested in, simply from having closed other properties in the area. This familiarity can extend to the appraiser they send to assess your home’s value, one of the essential steps necessary to closing any sale.
Lenders and brokers told us that mainland banks will sometimes fly their appraisers inter-island. Just as each of the islands has its own unique beauty, they each have features and benefits that may affect property values in slightly different ways from Maui to Oahu, and from Kauai to the Big Island. As a result, there may be a benefit to financing your home through one of the handful of retail banks available here, since by and large, they use appraisers who are resident on each of the islands. Living here means they know all the ins and outs that affect property values locally.
The primary local lending institutions are, of course, Bank of Hawai‘i and First Hawaiian Bank, but there’s also Central Pacific Bank and Territorial Savings Bank, as well as a few others. Generally, their offerings are straightforward and a bit more “vanilla”. For the most part, local banks require great credit, as well as sufficient assets and income, so if you’re looking for more flexible lending options, you may wish to explore lending products from mainland banks, too.
Another consideration is that if the property you are interested in buying is unusual in any way, it is wise to consult with both a local bank and a mainland bank. We suggest this because there are some property characteristics that are often quite typical locally, but which may not be typical on the mainland. These unusual characteristics may present a problem for mainland banks unfamiliar with them.
Our team of lending experts enumerated a few of these for us. Ohana units and short-term rentals are some of those features that are incredibly common here. Ohana units – what are commonly known as “in-law suites” elsewhere – are certainly not as prevalent across the country. In large measure due to our healthy tourism industry, Hawaii homes are often set up as stand-alone rentals, or they have ohana units for use as a short-term rental attached to the main property. Another distinctive characteristic of many Hawaii homes is their single wall construction, which, due to climate, isn’t common in many places on that U.S. mainland.
Another unique feature in Hawaii is the way we treat “condominium property regime”, or CPR for short. What CPR boils down to is a form of property ownership, where owners have independent mortgages and ownership of their unit, but they have shared ownership and usage of limited common elements – like a driveway, parking or lobby area, for example. While your Hawaii residence may have all the features of a CPR, it may or may not have a homeowner’s association (or HOA) in Hawaii. This distinguishes Hawaii from the mainland, where it’s atypical for any type of condominium (as defined above) to operate without one.
While CPRs and HOAs are a topic for another detailed blog post, the point is that many mainland banks aren’t familiar with some of these unique features that are quite common in Hawaii. Lending experts told us that many mainland banks are familiar with and understand these particular idiosyncrasies of the Hawaii market, but that’s not always the case.
Consider Loan Rates
Another factor to consider is loan rates. This is a huge consideration, of course. Several lending experts we spoke with concurred that mainland banks often offer lower rates and tend to be able to close loans faster than local banks, which may be appealing to any seller, especially if you’ve been pre-approved. Both mainland and local banks offer a variety of loan products to cover the wide array of borrowers’ needs. As with any decision this big, it’s always a good idea to consult with a professional – either a loan officer or a mortgage broker – to help you find the right fit for your needs.
In a recent blog post, we reviewed some of the advantages of getting pre-approved for a mortgage. We recommend a pre-approval for all the reasons mentioned in that post. But if you wait until you find the perfect home to start looking at financing options, you can be blinded by your own house lust. For a fun beach read on the topic, we recommend this book. When you’re envisioning yourself in that backyard, swinging in the colorfully striped hammock with a cold beer, you may have a case of house lust. In other words, you may act hastily in your race to make that house your home.
We’d like to caution you against this. With a pre-approval, you have the luxury of time to consider all the available options and fine tune the details surrounding financing, as well as other matters concerning your purchase. A wise choice, since this is likely to be one of the largest ticket purchases of your lifetime. We hope we’ve given you some helpful guidance on the advantages of using mainland or local banks, and we encourage you to explore the many options available to you to find the right fit. We also wish you happy house shopping!