Need-to-Know Basics For First-Time Homebuyers

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Being a first-time homebuyer can seem daunting, especially here in Hawai‘i. A lot goes into purchasing your first dream home, and ensuring you have all your ducks in a row is a good place to start. Daniel Costigan, vice president and sales manager at First Hawaiian Bank, shares what the first-time homebuying experience is like and debunks some myths about the overall process.

For a first-time homebuyer—defined as anyone who hasn’t owned a home in the last three years—getting pre-qualified for a loan should be among their first steps in the house-hunting process, recommends Costigan. “Going through the pre-qualification process will let you know your maximum qualifying amount and also allow a lender to provide you accurate numbers for a down payment, monthly payment and closing  cost,” he says. “Doing so also ensures that you’re shopping in the right price range.”

Many first-time homebuyers incorrectly believe they need at least 20% for a down payment to purchase a home. Lower down payment options are available, from as little as 0% to 3% down. “However,” Costigan says, “the less you put down the higher your monthly mortgage payment will be.”

Other thoughts that race through a first-time homebuyer’s mind: Single-family home or condo? New home or fixer-upper? What are closing costs and escrow? And why do I have to provide all of these documents? Although owning a home in Hawaii can seem next to impossible for some folks, Costigan and his team at First Hawaiian Bank are here to help.

Choosing between a single-family home or a condo is up to the buyer and their preferences, but Costigan urges people to consider any maintenance fees that might come with a condo purchase. “With single-family homes,” Costigan says, “buying brand-new has its advantages – it’s move-in ready. You can bring your toothbrush and you’re good to go. While a fixer-upper requires more work, there could be some price advantages, and you’re able to customize your home.”

Then there are closing costs and escrow, which will have many first-time homebuyers raising their eyebrows. “Closing costs are costs incurred to get your purchase closed. Lenders will have closing costs, and there are third-party fees such as appraisal and escrow. On average, closing costs are 1.5% of your loan amount,” says Costigan.

When you’re in escrow, that means the buyer and seller have agreed on the purchase price and are going through the process of closing the transaction, he adds. “In Hawai‘i, the normal escrow is about 45 days, which gives the buyer time to do their home inspection, get their loan squared away and gives the seller time to make their arrangements as well.”

Costigan recommends preparing documents—which typically include one month of pay stubs, two years of federal tax returns with W-2s and two months of bank statements — sooner rather than later.

“A lot of times, it can be the terms or some of the homework that’s been done ahead of time. If we can let the seller know you have prepared all of this and the lender has reviewed it, it will really help you move into your dream home.”

For more information, talk to a mortgage loan officer at First Hawaiian Bank or visit fhb.com. You can also check out the First-Time Homebuying Strategies for Hawai‘i video, which aired at the BIA-Hawai‘i Virtual Big Home Building & Remodeling Show.