Life is literally an island paradise in Hawaii, with countless palm trees, beautiful beaches, and some of the greatest sunsets in the world. Even though Hawaii has several relatively affordable cities, new buyers should be aware that moving to Aloha State comes with a large price tag, starting with closing costs that are among the highest in the country.
Closing costs, which typically range from 2% to 5% of the property’s purchase price, are all the fees that buyers must settle on the closing day before getting the keys to their new residence. It takes a village to help you acquire property; as just a few examples, you’ll need to pay your lender to set up your mortgage, your appraiser and inspector to evaluate your potential new home, and your home insurance company. You will pay for these fees in one lump sum rather than paying each service provider separately.
If you’re curious about how much closing costs in Hawaii can be, take a deeper look at what you can expect to pay and how you could possibly reduce these charges.
In Hawaii, How Much Are Closing Costs?
Due to the rising cost of real estate, homebuyers in Hawaii will need to be extremely wealthy to afford a down payment and closing costs.
According to a 2021 analysis by ClosingCorp, a company that does data on the U.S. real estate market, closing expenses for a home valued at $549,496 in Hawaii average $4,154. This amount equals 0.76% of the price of the house. The national average is $6,087 in comparison. Hawaii was one of the most expensive places to close on a home, coming in at number seven out of all 50 states.
However, ClosingCorp does not consider several items that could add thousands to your closing costs bills, such as home loan financing costs and private mortgage insurance. State-specific expenses were not taken into account either. In Hawaii, this would entail evaluating the danger of flooding, purchasing additional earthquake and windstorm insurance, and doing a land survey.
The amount you will spend on closing costs will also depend on where in Hawaii or the location you are moving to. The ClosingCorp estimate used an average property price of $549,496 although, for instance, Kauai and Maui have home values that are more than $1 million. According to Hawaii Realtors, the average sale price for a single-family home in Maui was $1.05 million as of July 2021, compared to $1.32 million in Kauai.
Closing costs might range from $27,500 to $66,000 if buyers want to pay up to 5% of a home’s price, which could be anywhere from an estimate of $550,000 to as high as $1.32 million.
Your full payment will be determined by the cost of your house and the difficulty of the property sale.
What Usually Comes With Hawaii Closing Costs?
Hawaii homebuyers might be curious as to why closing fees might be so expensive there.
Here are some typical closing costs you can encounter in Hawaii, along with state-specific information you should be aware of:
Loan Origination Fees
If you’re not paying cash for your new house, your lender will be your first stop during the home-buying process. However, acquiring a mortgage is not free; loan origination fees are required to cover all administrative expenses, from preparing your house loan application to handling your funds at closing.
Loan Origination Fees should be expected to range from 0.5% to 1% of the loan amount.
Fee for Credit Reports
Your lender will need to perform their due diligence to verify that you are a trustworthy borrower when you apply for any type of credit. Your lender will perform a full credit check on you as part of the house loan application process, which will include getting your credit report from various credit agencies to gain a thorough understanding of how you’ve handled your debts.
You will be charged by your lender for the fee of getting your credit reports. If more than one person is listed on the loan application, expect this expense to be doubled.
Escrow Company Charges
To help you through the whole closing procedure, you will need to hire a title company or escrow agency. Between you and the seller or home builder, the title firm serves as an unbiased middleman. Escrow fees are frequently shared by buyers and sellers.
Your money, including your earnest money deposit and down payment, will be stored by the title firm in a third-party escrow account until closing. A title search, working with an attorney to write purchase contracts and certify the transfer of deeds, working with lenders on both sides, and other crucial steps in the closing process will all be coordinated by the title firm.
Payment for the Attorney
While it is not required, you or your title company may work with a real estate lawyer to assist with legal documents, particularly those related to property transfer documents.
Moreover, a lawyer can evaluate your house insurance and title insurance policies, validate deeds, and assist in creating your purchase agreement.
The cost of hiring a real estate attorney in Hawaii completely depends on your location in the state, what you need the lawyer to handle, and how difficult the selling of your home is. Some real estate attorneys charge by the hour, while others offer a set rate to handle your house transaction.
Title Search and Title Insurance
When buying a home in Hawaii, a Title Search on the property is commonly given by your title and escrow company. A Title Search is a thorough investigation into the history of the property’s titles to confirm that your seller has the lawful power to transfer ownership to you.
You’ll need title insurance for you as well as your lender after the title search is over to cover all of your options. In the event that claims are made against your property, title insurance safeguards both parties. Your title company will assist you in getting adequate title insurance in accordance with the demands of your lender. Since it’s a one-time expense, the insurance is valid as long as you own the property you’re about to buy.
Usually, for the “owner’s” title insurance coverage, the seller must pay 60% and the buyer pays 40%. However, if you’re bargaining with the seller, you can divide up these costs in a different way that works for both of you.
Real Estate Transfer Tax
In Hawaii, the seller of a property is obligated to pay the real estate transfer tax, which is also termed a conveyance tax. It’s taken immediately out of the profit gained from the house’s sale at closing.
The rate a seller must pay is based on a number of factors, including the price at which the home is sold and whether the purchaser is eligible for a homeowner’s exemption. In a place like Hawaii where people may buy vacation homes or rental properties, it’s essential to recognise that a homeowner’s exemption indicates that the property will be used as the buyer’s principal residence.
Conveyance taxes for homes priced between $600,000 and $1 million are 0.15% for every $100, but if the buyer is eligible for the homeowner’s exemption, the rate drops to 0.10% per $100.
With a property tax rate of about 0.26%, Hawaii has one of the lowest rates in the country. A $517,600 home has an average annual property tax payment of $1,324. Prorated property taxes are paid by homebuyers at closing and then every two years after that.
Normally, lenders expect you to have a homeowner’s insurance coverage that is paid for and active at closing. If your home suffers damage from a fire, vandalism, or theft, this insurance will protect you.
In order to ensure you will have enough coverage, depending on where you reside in the state, do your research. Flooding, earthquake, and storm damage insurance may need to be added. To categorise your home’s flood risk, your lender can additionally need you to obtain a flood certification.
Home Inspection and Appraisal
Before your lender decides it is safe to transfer your house loan, you will also need to undergo an appraisal and home inspection.
In order to guarantee that your new house is valued fairly during the home-buying process, your lender will assign a third-party appraiser there. If you can’t pay your mortgage and go into default on your loan, your lender must be aware they can sell the house and make a profit.
To estimate the property’s fair market worth, an appraiser will evaluate the house, and its distinctive features, and compare it to nearby residences that are similar to it.
An assessment of a house serves a different purpose. In this situation, a comprehensive walkthrough of the property by an inspector will be performed to ensure everything, from the foundation to the roof, is in good condition. The house inspector will bring attention to problems that are now present or could develop in the future. Using this information, you can negotiate with the seller or request that they make fixes before you sign the contract.
Both the appraisal and the house inspection are paid for by the homebuyer.
Private Mortgage Insurance
Your lender will need you to purchase private mortgage insurance or PMI if you aren’t making a 20% downpayment. It enables buyers to be approved for a conventional loan with as little as a 5 to 19.99% downpayment.
Although you are responsible for buying the insurance, it actually protects your lender because you haven’t made a 20% down payment.
The price of PMI differs depending on the amount of your down payment and your credit score and is not included in the ClosingCorp total of closing costs expenditures. PMI prices normally range from 0.25% to as much as 2.25% of your outstanding loan balance.
What Can I Do to Minimise Closing Costs in Hawaii?
Is sticker shock already starting to set in? Here are some important strategies you may do to cut costs if you’re concerned about how you’ll have the money to close on your dream home.
Assistance with Closing Costs
The Homeowner assistance programmes in Hawaii might help you cut your closing costs significantly.
For instance, the Hawaii HomeOwnership Center Affiliate (HHOC) offers a 15-year deferred loan with 0% interest and no monthly payments as part of its down payment and closing cost assistance programme. The money can be used for your closing costs and downpayment.
Manage your Finances
Another strategy to significantly reduce the amount you’ll spend on closing costs is by managing your money.
An important step in the home-buying process is securing an interest rate. When applying for a house loan, a high credit score can help you get a loan with a cheaper interest rate, saving you thousands of dollars over the course of the mortgage.
In order to determine whether it requires improvement or is in good condition, check your credit score in advance. Don’t skip any payments on your outstanding debt, put your attention on paying down your debts to maintain your debt-to-income ratio low, and refrain from applying for new loans before you present your case to lenders.
Also, put aside as much money as you can for a down payment. PMI costs drop as you approach closer to the required 20% down payment. Even if you only have a 15% down payment, you are no longer obligated to pay PMI if your home equity reaches 20%.
Another great strategy is to pick your service providers carefully, whether you’re looking for a title business, an inspector, or a surveyor. To guarantee you’re receiving the best deal, read customer reviews, confirm their credentials, and then consider price points.
Moreover, you may compare interest rates for mortgage loans.
Unless you’re in a seller’s market, there is always room for negotiation when dealing with your seller!
It’s normal to negotiate an agreement on who pays for what with your seller. For instance, if you’re buying a fixer-upper home, you can ask the seller to pay some of your closing costs so you can use the money to pay for repairs. You might be able to agree with your builder to cover your closing costs if you’re buying a new house but need to pay for upgrades.
Every service and cost you’ll be responsible for paying on the closing day should be detailed in your Closing Disclosure form. To ensure that you understand and agree with the expenses you will be paying, read this entire list line-by-line.
Furthermore, you can negotiate over some expenses with your lender. You could request your lender to waive some loan origination fees if you’ve been a consistent, long-term customer with a number of loan products that you’re responsibly managing. The expenses that are sometimes referred to as “junk fees,” such as rate lock fees, loan processing fees, and broker rebates, are the most obvious ones you may attempt to cut out.
Mortgages without Closing Costs
To minimise this fee, some homeowners can choose a mortgage with “no closing costs.” With No Closing Cost mortgages, your lender offers to cover all or a share of your closing costs, but you are required to pay a higher interest rate in exchange.
Due to the increase in interest rates, this may end up costing you more money in the long term, but for certain homeowners, it might be the best option.
Including Closing Costs in Your Mortgage
You might be able to include your closing costs into your mortgage if you don’t have the up-front funds to pay for them. This means that although you won’t be responsible for covering these costs on closing day, your monthly mortgage payments will be slightly higher to make up for it. In the end, the closing fees that were added to your original mortgage are what you’re paying interest on.
To find out if this option is offered, check with your lender. Don’t forget that not all closing costs can be financed because some, like homeowner’s insurance, require up-front payment.