Yes, You Can Own a Home in Honolulu!
(Sponsored) Realtors share tips to help get you on the path to homeownership.
Before the hustle of your day begins, or when you’re unwinding in the evening, many of us enjoy poking around real estate websites and apps to see what’s out there. Within days you may notice you have half a dozen listings saved, as you envision living comfortably in your new home.
With digital convenience, finding appealing and attractive homes is the easy part. But, what are the next steps you need to take to ensure that you purchase the best home for your lifestyle and finances?
What’s The Long-Term Goal?
Before hopping into organizing your finances, analyzing neighborhoods, and weighing down payment options (all topics we’ll soon cover), you’ll want to consider your long-term real estate goals.
“A couple may say, ‘We saw this listing online and really like it’,” explains Sue Ann Lee, 2017 president of the Honolulu Board of REALTORS®.
“That’s great, but what we need to do is have a conversation about what they’re really looking for — whether the property will be an investment to generate income, their forever home, or something else,” Lee says.
When you consult with a Realtor, he or she will most likely advise you to get your finances in order and obtain a pre-qualification, followed by a pre-approval commitment from a lender, before you begin shopping for a home.
“Pre-qualification” simply means providing lenders with your income, debts, and assets, so they can make a rough estimate of the loan amount for which you may qualify. Once you’ve been pre-qualified, you may submit an application, accompanied by the last two years of tax returns with income, asset, and debt documentation. If approved, a lender will provide you with a Pre-approval letter that states the amount of money they are willing to loan you for a home purchase.
“We talk about finances with our clients,” says Lee. “A Realtor will ask you what your desired price range is, your down payment plans, and if you’ll have any family support with your loan or down payment.”
It’s important to gauge not only current debts and financial obligations, but also your spending habits. You’ll want to be sure that you’re not spending beyond your means, which could hurt your ability to get pre-qualified for a loan, and subsequent approval with a lender.
Of the utmost importance is having maintained a healthy credit score with no late charges prior to seeking pre-approval from a lender. If your credit score is low (below 620), ask a financial professional how you can improve it.
Down Payment Options
When it comes to making a down payment, buyers have a range of options. Of course, the more money you’re able to put down, the easier it will be to get a loan. Your monthly payments will also be less.
While a typical down payment is 15 to 20 percent of the home price, there are alternative options if you’re not able to come up with the traditional 20 percent down payment. With a strong credit score and a higher income-to-debt ratio, buyers can find loans that require as little as 5 to 10 percent down. Veterans have the option of a VA loan, which requires no down payment at all.
“I had one of my lender friends pull some figures comparing if someone put 20 percent down compared to 5 percent down, on the 2016 median sales price of $390,000 for a condominium in Honolulu. The difference would result in monthly payments of $2,258 with 20 percent down, versus monthly payments of around $2,790 with 5 percent down,” says Lee.
If you only have, or are only willing to spend, 5 percent on a down payment, it’s almost imperative to have little to no debt when seeking a loan pre-approval.
There are also some loan and down payment assistance programs available for first-time homebuyers, as well as for those with certain professional and financial circumstances. Although some loan programs have become less available in Hawaii, the USDA loan program — which requires no money down — is a creative way to aid a first-time buyer. Select listings on hicentral.com are accompanied by green dollar sign Down Payment Resource icons, indicating those properties qualify for down payment assistance.
Neighborhood Market Analysis
When shopping for a home, you’ll want to do your homework on the neighborhoods you are interested in, as well as the surrounding areas.
Conducting your own market research is helpful, but consulting with a knowledgeable Realtor will provide a more accurate benchmark of current market trends in relation to neighborhood listing costs.
“We are very familiar with the neighborhoods in which we work. I would never assume a position on a neighbor island. I’d always defer to a Realtor who works on that island,” says Lee.
Last year, the median price of a single-family house in Honolulu was $735,000; however, there are many neighborhoods with single-family house prices well below the median.
“If buyers want to live in Metro Honolulu, I’ll ask them where they work, and what sort of lifestyle choices would they be willing to consider,” says Lee.
With housing developments on the rise in Central and West Oahu, a few areas with more affordable median home prices include the Ewa Plain and Kapolei.
Is A Condominium The Right Choice?
Across Oahu, condominium developments have been on the rise. A condo is convenient for those who work in town. It’s also a good choice for those who cannot currently afford a single-family house. Many condominiums also provide basic amenities and can serve as an investment toward your next home.
The days of paying college students to stand in line for a first-come, first-served condominium purchase have pretty much disappeared. If a development has yet to be completed, there is typically a lottery drawing for potential occupants.
If chosen in a lottery drawing, a pre-qualified buyer should be prepared to put down 5 percent of the purchase price and sign a qualifying contract. The buyer then has 30 days to read the project’s public report before deciding to submit another required percentage of the home cost. Down payment percentages are dependent on individual developments.
Buyers should also consider association fees when thinking about condominium costs. These fees go directly to building maintenance and repairs, as well as amenities like pools and landscaping. Many older condominium fees typically equate to approximately $1 per unit square foot. In newer, more energy-efficient developments, fees can range from $0.70 to $0.80 per unit square foot.
Finding a Realtor you’ve connected with, and who has your best interests in mind, is key. Realtors are not paid a retainer fee to find your home, but are paid by the seller after the sale.
“Agents work in different ways, but we normally get paid by the seller. Commissions are negotiable, but typically sellers will pay a percentage of the sales price, which is then split between the buyer’s and seller’s brokers,” says Lee.
To make the task of finding a Realtor as easy as possible, prospective buyers can visit hicentral.com to browse a directory of more than 6,000 Honolulu-based Realtors. Buyers can even search for a Realtor by languages spoken or professional designations held, such as the Certified Residential Specialist, Military Relocation Professional or Senior Real Estate Specialist.