In the first installment of our Maui property ownership series, we focus on some common questions and answers relating to the Hawaii real estate purchase process. Whether you’re thinking about moving to Maui or buying a Maui vacation rental, some background knowledge can make the experience smoother and easier.
Q: What do I need to know about my finances?
A: It’s a great idea to start off by taking a close look at your current income, debt, savings, and investments. In addition to getting a sense of your total budget, you’ll need to know what you have available for a down payment.
You’ll also want to consider the most common expenses that go along with buying and moving into a new home. Your real estate agent can guide you through what to expect when it comes to a home inspection, closing costs, property taxes, homeowners’ insurance, homeowners’ association fees, and moving costs.
It may be especially helpful to start gathering the kinds of financial information a lender is likely to need from you. Specifically, lenders may request documentation such as W-2 forms from your employer (or, if you’re self-employed, two years of 1099s plus a year-to-date profit-and-loss statement), two months of bank statements and investment account statements, and a quarterly statement from your 401(k) plan (if you have one).
Q: What are my loan options?
A: You may think you need a certain income level, a certain credit score, or a certain down payment to qualify for a mortgage. But along with conventional loans, there are federal (FHA, VA, USDA), state, and local government loans, as well as specific programs for first-time buyers. In contrast to more traditional loans, these alternative loan options may have more flexible qualification criteria.
It’s important to keep in mind, though, that some types of loans do come with restrictions. For example, certain loans might only be available to buyers purchasing permitted, conforming-use properties, or might not be available for condo complexes that allow short-term vacation rentals.
And actually, that issue segues right into our next Q & A …
Q: Does it matter whether I use a local lender?
A: It absolutely does. Maui’s lending and escrow processes are unique to Maui. And naturally, local lenders know the most about local loan options for different types of buyers and different types of properties.
Your real estate agent can connect you with trustworthy, licensed lenders who have a detailed understanding of the ins and outs of buying Maui real estate. If you work with a local lender, it also reassures the seller that when they accept your offer, the transaction is likely to happen without a hitch.
Q: Do I need to get pre-approved for a loan?
A: Yes, you do. Once a lender has reviewed your income, assets, credit, etc., they can give you an accurate assessment of what you can truly afford. They’ll feel confident that you can pay back what you plan to borrow, and you’ll have the peace of mind of knowing you’re looking for a home in the right price range.
Particularly if you happen to be in a sellers’ market/multiple offer situation, you’ll want to strengthen your purchase offer in any way you can. When you’re prequalified, it assures the seller that your offer is legitimate and you’re serious about buying. Likewise, if you’re planning to pay in cash, a proof of funds (POF) document shows that you’re able to cover all purchase costs.
One final note: remember that once you get preapproved (or obtain a POF), it’s a good idea to keep your finances as stable as possible. For example, don’t change jobs or make a major purchase (such as a vehicle).
It may seem daunting at first glance, but with a thorough understanding of the local market and local practices, a Maui real estate purchase is within reach. I’d love to answer any questions you have or help you get started on becoming a buyer!
Read Part 2: Choosing the Best Property Management Option for Your Maui Vacation Rental
Leslie Mackenzie Smith, REALTOR(S), RS-42147
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