Whether you’ve lived here all of your life or just spent a fabulous two weeks relaxing at an oceanside condo, it’s safe to say you’ve already discovered that Maui is paradise. A uniquely beautiful island with a variety of things to offer. A haven for wildlife, adventurers, and nature enthusiasts.
A diner’s delight, especially if you enjoy eating Mahi Mahi at dinner that was caught the same morning. So if you're considering moving to Maui and making Maui you're permanent home or you're considering a second home/investment property here is some important information to consider about financing that dream property
It Sounds Simple, But…
Buying a home can sometimes be complicated, particularly for first-time homeowners. It’s often one of the biggest financial commitments we make in our lifetimes—not something you want to take on lightly. We advise our clients to get a proper education and, as Realtors, we do our best to provide it. We’ll teach you the ins and outs of the Maui real estate market and, perhaps most importantly, fill you in on the financial products and professional services you’ll need to access before the keys to your new place land in your pocket.
That’s one way we earn our commissions and you should expect it of any Realtor you consider doing business with. Today we’re going to start by talking about how to begin shopping for a mortgage and the questions you may want to ask a mortgage lender. Mortgages come in all shapes and sizes. Ideally, your Maui mortgage lender will help you find the best loan for your needs when buying a Maui property.
First Thing First: It’s Not Always What You Think
Many people assume that it’s a good idea to start shopping for a mortgage when you first start shopping for a house. And that’s true, to a point. But if you’re even thinking of buying a home, the first step you should take is to download a free copy of your credit report. Many homebuyers have no idea what’s in theirs and that can precipitate some unpleasant surprises down the road.
Typically, national mortgage lenders reserve their best interest rates for homebuyers who have very good or excellent credit—somewhere between 740 and 800 and above. That’s why you should do everything you can to raise your credit score before ever applying for a mortgage. Lower interest rates mean lower monthly payments and reduce the lifetime costs of owning a home.
If you download your credit report and learn that your credit score isn’t ideal, there are plenty of steps you can take to boost it. Credit reporting bureaus take about a half dozen factors into account before assigning you a score. The most important is your record of making on-time payments on your credit accounts. Next in line is the amount of total debt you’re carrying when compared to how much money you earn.
That’s called your debt-to-income ratio. If any of your credit accounts are in arrears, bring them up to date by making any overdue payments immediately. Then pay down your high-interest credit cards as best you can to reduce your overall debt. If you already have a mortgage, try making an extra payment before you apply for a mortgage. That will go a long way toward raising your credit score, but it won’t happen immediately. That’s why we advise clients to begin paying attention to their credit and correcting any bad credit habits they may have about a year in advance of applying for a mortgage.
Incidentally, being wealthy doesn’t necessarily equate with having a high credit score. Scores are based on credit habits, not your net worth. So no matter how high your income or impressive your stock portfolio is, be sure you know where you stand with all three major credit reporting bureaus: Transunion, Equifax, and Experian. You can also check your FICO score, which takes into account your scores from all of those bureaus. Many banks allow their account holders to check their FICO scores for free.
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All Mortgages Are Not Created Equal
Arguably, there are as many mortgages out there as there are homebuyers. Every mortgage reflects the unique qualities of the home it’s used to purchase and the financial circumstances of the mortgagee. But we can categorize mortgages into two groups: conventional and government-guaranteed. Your realtor can help you figure
out which category of loan is best for you. But let’s take a look at a few mortgage types and point you in the direction of one that will suit you as a borrower.
Conforming mortgages—one type of loan that falls into the conventional category—offer homebuyers a lot of flexibility. For homebuyers who have solid credit histories and have saved enough for a moderately-sized down payment—20% of the property’s value—conforming mortgages offer significant benefits. (Anyone can apply for one, though.)
● Conforming mortgages are more widely available. More lenders offer this type of loan versus government-backed loans.
● There are fewer hoops to jump through when applying for a conforming mortgage. You can often apply and close on one entirely online. That’s a real advantage in Maui’s red hot real estate market, where homebuyers have to act fast before they’re outbid on a property.
● Because conforming mortgages are more profitable for lenders than government-guaranteed loans, financial institutions compete more fiercely for this type of loan. Credit-worthy borrowers can typically find a great conforming mortgage rate.
Property in Maui can be pretty pricey. When the size of the mortgage you need exceeds the upper limits of a conforming loan—in 2022, that’s greater than $970,800 in Hawaii—you can apply for another type of conventional loan, the jumbo mortgage. Jumbo mortgages often have stricter qualifications than conforming loans. Typically, you’d need a credit score north of 700 to be approved for one. You can have a debt-to-income ratio as high as 45%, but you may also have to demonstrate that you have cash reserves equal to a year’s worth of mortgage payments to be approved. But a jumbo mortgage may help reach your goal of owning your dream home in Maui.
Speaking of dreams, homeownership is an archetypal element of living the American Dream. And the federal government wants to help that dream come true for its citizens. It offers several mortgage programs that can make homeownership more affordable. In some cases, with their more lenient qualifications, these mortgages open the door to homeownership for people who might otherwise not be able to buy a home. Let’s take a look at some of the home finance opportunities the federal government offers. You may well qualify to take advantage of one of them.
If You’re a Vet, You’re in Luck
In 1944, the US government enacted the Servicemen's Readjustment Act, also known as the GI Bill. The bill was designed to support the thousands of servicemen and women make the transition to civilian life again. One of its many provisions was the introduction of Veterans Administration (VA) mortgages. VA loans are available to veterans, active service members, and in some cases, their spouses.
While they are administered by nearly 1400 banks, credit unions, and financial technology companies, these loans are guaranteed by the federal government—meaning that if a homeowner defaults on their VA loan, the government will step in and pay off a large portion of the balance. That makes VA loans less risky than private mortgages. And that’s why they typically come with lower interest rates and less stringent qualifications. Lenders are more willing to take a chance on you, even if your credit score isn’t stellar, because they know that no matter what, they won’t be left holding the bag.
Having trouble saving the money for a down payment on a home? VA loans offer one other huge advantage: qualified homebuyers can often take one out with no money down. You may not be offered as low a rate as you’d be offered if you made a down payment. But VA loans make the goal of homeownership easier to reach for millions of eligible Americans. In 2021 alone, financial institutions wrote 1.4 million VA loans.
Location, Location, Location: USDA Loans
Like VA loans, United States Department of Agriculture (USDA) loans are available through thousands of financial institutions. They’re also government-guaranteed. But you don’t have to have military experience to apply for one. They’re issued based on the location of the property you’re purchasing.
USDA loans were originally developed to encourage the development of rural areas, there are a limited number of Maui properties that are eligible for USDA loans. USDA borrowers must also meet certain income qualifications—A USDA loan can make owning property in Maui possible for middle-income families.
Consider All of Your Costs
In addition to helping you find the right mortgage for your needs, your lender should help you understand the total monthly cost of homeownership in Maui. That includes such expenses as real estate taxes and homeowners insurance. Many mortgage statements include these costs, which are held in escrow by your lender.
But if you purchase a condominium, your expenses may also include homeowners’ association, maintenance, and special assessment fees charged when major upgrades or repairs are made to the property. These fees in total can add up to hundreds of dollars per month. Both your lender and your Realtor can help you enter a purchase agreement with your eyes wide open.
We’ve provided a lot of detail in this article to help you make a smart homebuying decision and enjoy a smooth path along the way to homeownership. But here are the main takeaways we hope our readers keep in mind:
● Get credit savvy and do everything you can to maximize your credit score.
● Investigate a wide range of mortgage options. Take time to shop around.
● Take all the costs of homeownership into account to be sure you can afford the home you’re purchasing.
● You’re not in this alone. Lean on the professionals. Your Maui Realtor (hopefully me!) and your lender should support you with accurate information to help you make the right decision.
This article is a guest submission from Susan Doktor. Susan is a journalist, business strategist, and principal at Branddoktor. Her contribution comes to us courtesy of Money.com. Follow Susan on Twitter @Branddoktor.
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Evan Harlow is a Realtor on Maui who has the expertise, experience, and work ethic to help you achieve all of your real estate buying or selling goals. We promise exceptional service and support from the beginning of the process through closing and beyond.
Posted by Evan Harlow R(S) 82003 on