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Buying Basics

Think you can't afford to own your own home? Think again!

In five minutes, we can help you find out if you can afford to buy a home. Did you know that the State & County of Hawaii has a new program to help you buy your first home?  We can work with you to make home ownership a reality instead of a dream.

Because at Rainbow Properties - Dreams Really DO Come True!

 

Step by Step to Buying Your New Home,
& Info for First Time Buyers:

We're ready to buy, but how do we start?

The place to start is the buyer orientation meeting. This meeting is crucial to insuring a smooth transaction. During the meeting we will discuss things such as:

  • Buyers new home requirements
  • Buyers representation
  • Pre-qualification
  • Area information
  • Answer any other questions you may have about buying your new home.

Should I get pre-qualified with a mortgage company?

Getting pre-qualified for your new home loan is essential and serves two purposes. First it lets you know what your loan limits are so we don't look at homes outside of your means. Second, by having a letter of pre-qualification from the lender when we submit an offer, the seller knows you are able to close on the transaction, which makes your offer stronger than one that may not be accompanied with a letter.

Since most mainland lenders will not hold Hawaiian property as collateral, you will normally have to apply for a mortgage loan in Hawaii. A local lending specialist can assist by "pre-qualifying" you and/or arranging a "pre-approval" certificate that you can present to home sellers. For the pre-approval, they will need your:

  • Name and address
  • Nominal fee for your credit report

Pre-qualifying and pre-approval can speed up your entire home buying process.

How do we get a loan?

The next step to speed up the application and approval process is by having the following list of documents available at the time you make your loan application:

  • Name in which title is to be held and Social Security Numbers
  • Names and addresses of landlord or lender for the past 2 years. Previous address history for 7 years.
  • Names and addresses of employers for the past 2 years
  • If you are self-employed or commissioned, furnish at least 2 years of complete tax returns or apply for a 'no income stated loan'.
  • Names and addresses of financial institutions with your account numbers and balances
  • Lease agreements, to verify rental property income
  • If you are using income from child support or alimony to qualify for a loan, bring copies of all pertinent court decrees
  • List of all assets (stocks, bonds, autos, etc.)
  • List of all creditors with names, addresses, account numbers and balances
  • Sales contract with description and address of property you wish to buy
  • VA loan only -- Certificate of Eligibility or DD 214 (Certificate of Separation)

The Loan officer reviews credit report and will advise on best financing program:

  • Loan officer reviews documentation and prepares list of any additional documents needed
  • Loan officer may "lock" in an interest rate
  • Loan processor will order appraisal and title work from title company
  • Loan processor verifies employment and documentation and prepares file for submission to underwriter for final approval
  • After approval, closing package is prepared by attorney and lender delivers to title company for closing
  • When closing is complete, lender will review and provide funding for purchase

How do we find the right home?

Now the fun part begins! After the buyer orientation, we will have a good idea of what you are looking for and we can find the home that best meets your needs. For relocation buyers that have to find a new home now, we can search the Multiple Listing Service during the interview and set an appointment to see the homes that meet your criteria. For the buyer who has a little more time to look, we can enroll you in our update listings, where we will send you an email of new listings that meet your needs as they become available. If it's a home you want to see, we can set an appointment to view it. Sometimes investment buyers put in an offer to secure the property sight unseen while living on the mainland, and put a contingency in the offer stating that the buyer will view and approve of the property within a certain time period if the offer is accepted by the seller. If after viewing the property, the buyer is not satisfied with the property, the deal is cancelled.

We found the right home, now what?

After viewing the right home for your family, as a Buyers Representative, I will provide you with as much information as possible in order for you to make an educated, informed and competitive offer. When we have prepared the offer, I will present it to the seller, in most cases via the listing agent in a timely manner.

What is a "due diligence period" and what should I be doing during it?

After the Purchase Contract is negotiated and is approved in writing by all parties, the offer becomes a binding contract. At this point the clock starts ticking and a contingency period begins for the buyer. This is usually a 7-10 day negotiable period when the buyer makes sure the home meets their needs. The first thing the buyer needs to do is set up a professional inspection during the option period. This is paid for by the buyer. When the inspection is completed, the buyer will receive a written report and repairs, if any, are again negotiable. When the option period ends, both parties are bound to the contract.

There could be financial contingencies based on your getting a loan within a certain time period too.

Your real estate agent is there to handle these contingencies on your behalf and keep you informed of the escrow's progress. If you have any questions regarding your contract contingencies, be sure to ask us!

What does escrow do?

  • Review contract for complete instruction of transaction and hold earnest monies
  • Run abstract to ensure free and clear title
  • Send title commitment and deed restrictions to buyer for review and approval
  • Order documents for transfer of title and file new deed with the county
  • Prepare closing statement
  • Coordinate closing date and execute closing for both parties
  • Disperse funds to all appropriate parties

How do I prepare to move?

While the mortgage and escrow company are preparing for closing, the buyer needs to complete the following:

  • Set up and transfer utilities
  • Give notices as necessary
  • For pet relocation to Hawaii there is a quarantine period-make sure you know the facts
  • Register for schools and day care
  • Set up new insurance
  • Schedule movers
  • Submit change of address to post office and creditors
  • Start packing

Is there anything to do before closing?

Just prior to closing the escrow company will provide a closing statement for review, which gives a line-by-line breakdown of all charges for both buyer and seller. You will also have a final inspection of the home just to make sure the home is in the same condition as the time of contract and to verify that any repairs are satisfactory.

What happens on closing day?

This is the day you have been waiting for. Congratulations! The buyer and seller each have an appointment at the escrow office to sign all closing documents, usually at different times. At the closing don't forget to bring certified funds, drivers license and any documents needed by lender. After closing, the lender usually funds the loan by the end of the next (business) day and possession is the granted to the new buyer the following (business) day.

 
First Time Buyers?

As a first time homebuyer, what should you do to position yourself? For starters, you'll want to:

  • Do your homework. Determine what you want - how many bedrooms, approximate square footage, and which neighborhoods you prefer. Drive around selected neighborhoods at different times of the day and night to check on activity and noise. If you have just relocated, or are thinking about relocation, rent first to see if you really like the area.
  • Think about condominiums and townhouses. These are typically more affordable and may suit your lifestyle: typically other singles - close by, and you may have access to community facilities, like a pool or workout room. But you'll also need to consider you probably won't have much privacy outdoors or any type of back yard. You'll also need to factor in how much you'll pay for your homeowners association fees / condo maintenance fees.
  • Spend time comparing mortgages to get the most advantageous plan for your requirements and financial situation. The usual down payment is 20% of the offered price in cash. Also you need to have about 2% to cover closing costs.   Other expenses to be aware of may be loan fees, taxes, PMI, Leasehold rental, Conversion fee and monthly maintanance fees. If you feel that you may not have the means at the moment, don't despair, there are creative ways around financing your home.
  • Get pre-qualified for a mortgage before you begin looking at homes. Not only will this give you a price range for your purchase, but a pre-qualification letter will add a great deal of strength to your offer.
  • Find an agent who represents your interests, and that you can communicate with about all aspects of buying a home. Bear in mind that as a buyer in Hawaii you usually don't pay your agent commission, the seller does. Stay in close contact with your agent and clearly express your needs. This is especially important if you're in a market where inventory is low. You'll want to be notified as soon as a home that fits your criteria goes on the market.
  • Keep in mind that there's no such thing as the "perfect" home. Instead, set priorities. Determine what you're willing to sacrifice, especially if you're in a tight market.
  • Bid competitively. Keep in mind you'll likely be competing against other offers. If you're in a tight market, it's not the time to see how low the seller will go.
  • Protect yourself by investing the $200 to $500 for a professional inspection before you buy the home and sign the final mortgage loan papers, otherwise you run the risk of not exposing potentially expensive - or even hazardous - defects in the property.

Most importantly, if you're determined that now is the right time for you to buy, don't be timid! You'll need to be ready to make an offer as soon as you see that close-to-perfect home that hits the market

Buyer FAQ's
  • Q:  Determining how much home you can afford
  • One of the first things you will want to do is determine which homes fall into your price range. Since most mainland lenders will not hold Hawaiian property as collateral, you will most likely have to apply for a mortgage loan in Hawaii. A local lending specialist can assist by "pre-qualifying" you and/or arranging a "pre-approval" certificate that you can present to home sellers. During the pre-approval, they will take your credit and employment information and, for a small fee, obtain a detailed credit report. Pre-qualifying and pre-approval can speed up your entire home buying process.  

    Q: Loan approval process

    A:  The next step to speed up the application and approval process is by having the following list of documents available at the time you make your loan application:

    • Name in which title is to be held and Social Security Numbers
    • Names and addresses of landlord or lender for the past 2 years. Previous address history for 7 years.
    • Names and addresses of employers for the past 2 years
    • If you are self-employed or commissioned, furnish at least 2 years of complete tax returns or apply for a 'no income stated loan'.
    • Names and addresses of financial institutions with your account numbers and balances
    • Lease agreements, to verify rental property income
    • If you are using income from child support or alimony to qualify for a loan, bring copies of all pertinent court decrees
    • List of all assets (stocks, bonds, autos, etc.)
    • List of all creditors with names, addresses, account numbers and balances
    • Sales contract with legal description and address of property you wish to buy
    • VA loan only -- Certificate of Eligibility or DD 214 (Certificate of Separation)
  • Q:  What do "Leasehold" and "Fee Simple" mean?

    A:  If you purchase a fee simple property, you own the land and the improvements upon it.If you purchase a leasehold property, however, you are buying a lease for the land and, usually, you own the improvements. A residential leasehold might have been set for 55 years but if the ground lease is 30 years old, there would be 25 years left on the lease. Most banks require a minimum number of 10 years remaining on the lease before they will agree to lend on the property, and that a loan will be granted on the balance of the years remaining, i.e. 15 years in this case. Some require that the lease be renegotiated with the ground lessor, often a family trust or large landholding estate. This can take more time than you expect and, in fact, lessors are not obliged to extend or renegotiate the lease. Some leasehold properties, i.e. condos, offer a fee conversion, to convert the leasehold property to a fee simple property. This can be at the time of purchase, or at a later date, at a price determined by the lessor. With all this, why would anyone buy a leasehold property? Because it is often less expensive to purchase and the lease is depreciable, which may have some tax advantages for you.If you contemplate buying a leasehold property, be sure to determine the renegotiation date as it may occur shortly, especially if the price appears to be a bargain. As always, before purchasing any property, you should consult with your tax advisor and your attorney about how to protect your tax position and your estate.

    Q:  Why do I need a survey so early?

    A:  Surveys are usually a standard part of every real estate sale. They protect the buyer's interest by defining the exact position and size of the property he is buying and assuring him that there are no encroachments or boundary problems. The survey is conducted early so that, should problems arise, they can be resolved in a timely manner and not unnecessarily delay the close of escrow. The cost of the survey is generally paid by the seller.

    Q:  Do I need a home inspector?

    A:  The buyer of property is entitled to have a licensed, professional inspector look at the property and issue his inspection report. This inspection is paid for by the buyer. We cannot stress enough the importance of having the property inspected by a licensed home inspector. Your agent is not a roofer, electrician, plumber or contractor. Only a licensed professional can give you an informed report detailing the exact condition of the property. The obligation to purchase the property is contingent upon the buyer's approval of the results of such inspection within a specified number of days after the contract acceptance date .

    Q:  What should I expect to pay for closing costs?

    A:  A good rule of thumb is 2% of the purchase price ecluding loan fees. Buyer and seller costs are listed in the standard terms of the sales contract. Additional items may be negotiated as special terms of the contract, i.e. furniture or other personal property. Individual situations can differ substantially, depending upon variables such as the level of market activity, the condition of the property and your motivation to buy. Your agent will give you a fairly close estimate and will work to make sure you are paying a fair price for the services provided.

    Q:  What is home tax exemption?

    A:  Hawaii law provides home exemptions for property tax purposes. The exemption serves to reduce the taxable assessed value of your property, thus reducing the property tax liability each year. The exemption is available only for owner occupied property as of January 1 each year. You need to apply only once. Every owner-occupied property is entitled to the basic home exemption of $40,000. A multiple home exemption was established to lighten the tax burden on senior citizens who have relatively fixed retirement incomes. Senior citizens who are 60 years or older are eligible to apply.

    Age 60 to 69 = 2x basic home exemption =$80,000.

    Age 70 or over = 2-1/2x basic home exemption = 2-1/2xX 40,000 = $100,000

    Claims for exemptions may also be filed by totally disabled veterans, Hansen's Disease victims, the blind, deaf and totally disabled, and charitable organizations using their property for non-profit purposes. For more Information on Home Exemptions call (808) 327-3540. To obtain the multiple home exemption, a taxpayer must be 60 years of age on or by January 1, preceding the tax year for which the exemption is claimed.

    Q:  What are Contingencies ?

    A:  The buyer's obligation to buy the property is subject to the satisfaction of a number of contingencies in the contract. These contingencies are terms in the contract which must be satisfied by a time specified in the contract. All satisfaction of contingencies should be done in writing within the time frame set forth in the contract. Technically, if a contingency is not satisfied within the specified time period, that contingency may be deemed to have been waived. Each party to the contract should understand the importance to act upon each contingency according to the strict deadlines described in the contact. Failure to do so could result in an unwanted result. Your real estate agent is there to handle these contingencies on your behalf and keep you informed of the escrow's progress. If you have any questions regarding your contract contingencies, be sure to ask us!

    Q:  Termite Inspections & Treatment

    A:  We live in the tropics, and termites are a fact of life. A termite inspection will most likely be required by your lender just prior to close to determine if the property has evidence of live termite infestation. If termites are found, the property will be treated. Usually, the seller pays for both the inspection and any treatment required prior to close of escrow.

    Q:  What does CPR mean?

    A:  In Hawaii real estate, CPR stands for “condominium property regime” and is most commonly heard when referring to a number, the “CPR number”, which identifies one condominium property from another for tax and sales purposes. A single-family residence, for example, has a five number Tax Map Key (TMK) such as 3-8-43-21-10, which refers to a specific piece of land and everything on it. Because condominium ownership includes a percentage interest in the land with other owners, the Tax May Key has a sixth number, the CPR number. This identifies a specific apartment in a high rise or a portion of a lot when land is “condominiumized.” Thus a condo TMK number looks like this: 3-8-42-21-15-001

     

    Q:  What is the property tax rate ?

    A:  Improved residential property tax rate is $9.10 per $1,000 of valuation .Source: City and County of Hawaii, Department of Finance, Real PropertyAssessment Division, Real Property Tax Valuations Tax Rates, & Exemptions,2004-2005 Tax Year, State of Hawaii.

     

    Q:  How should I take title ?

    A:  Because of the implications for your estate and tax status, we urge you to discuss this question with your tax advisor, attorney or estate planner.