First-Time Homebuyer Programs in Hawaii

For first-time buyers, the path to homeownership can be challenging. Thankfully, there are ways to obtain financial assistance to simplify the process. To help you decide the Hawaii first-time homebuyer program that best fits your needs, MoneyGeek researched the available options so that you can achieve your homeownership dreams.

It’s difficult for first-time buyers to purchase a home due to rising living costs, lack of available inventory, skyrocketing mortgage rates and increasing property prices. Thankfully, programs that help with down payments offer full mortgages, and other similar initiatives provide a potential solution to assist homebuyers who require financial assistance. These programs are managed by nonprofit organizations, local or state housing authorities and lenders from the private sector.

There are federal homebuyer programs that are available to citizens or permanent residents of the United States, although not everyone is qualified for government-backed loans. For instance, only active-duty military personnel, veterans and their families are eligible for VA loans. Meanwhile, the only people eligible for Hawaii's homebuyer programs are the state’s residents.

It's important to evaluate your ability to pay in full before making an offer on a house. The kind of mortgage you can acquire and how much money you can get from a lender depends on your down payment. A greater down payment, which is the money you pay initially for the home, typically translates into a lower monthly mortgage payment.

Zero-down-payment loan programs offer the easiest way to obtain a mortgage with no money down. Two financing programs that allow you to purchase a home with no down payment include the USDA loan and the VA loan.

The government offers USDA loans, which are loans backed by the U.S. Department of Agriculture, to promote development in rural and suburban regions. This is a fantastic option because it requires no money down and has some of the lowest fees in comparison to other loans.

There are three home lending programs under the USDA:

Section 502 Direct Loan Program: Also known as the Single Family Housing Direct Home Loans, this program helps low- and very-low-income applicants receive housing in designated rural areas.

Section 502 Guaranteed Loan Program: This offers a 90% loan note guarantee to certified lenders to decrease the risk of offering 100% loans to qualified rural homebuyers. This means that people who qualify can purchase a home with no money down.

Section 504 Home Repair Program: This offers grants or loans to very low-income homeowners to repair, remodel or modernize their houses.

VA home loans are backed by the U.S. Department of Veterans Affairs and come with more favorable terms, like lower interest rates. First-time homebuyers in Hawaii can consider this mortgage option if they are service members, veterans or eligible surviving spouses.

When compared to other loans, VA loans come with more lenient requirements. They don’t mandate a down payment and have a low minimum credit score requirement. There’s also no need to get private mortgage insurance (PMI). Plus, the VA backs loans regardless of the home price. This means that there’s no loan limits.

When applying for this type of loan, you will be required to submit a Certificate of Eligibility (COE). This verifies that you are eligible for the VA home loan benefit.

However, you may not get a COE if you received a dishonorable or bad conduct discharge.

Low-down-payment mortgage loans let you purchase a home with less than a 20% down payment. There are low down payment choices for both conventional loans and FHA loans.

“Conventional” denotes that the loan is not a part of any particular government initiative. While they are more challenging to obtain, conventional home loans are often less expensive than FHA loans. They also only require 3% down to qualify.

Conventional loans that follow the guidelines established by Freddie Mac or Fannie Mae are called conforming loans. They follow the loan limits set by the Federal Housing Finance Administration (FHFA).

The government does not sponsor conforming loans. As a result, they typically have stricter requirements to qualify. You might need a minimum credit score of 620 or higher and a debt-to-income ratio of 45% or lower to get one of these loans.

Conforming loans are conventional, but not all conventional loans are conforming. Loans that exceed conforming limits are called jumbo loans. These loans are generally harder to get.

FHA loans are a great option for first-time homebuyers in Hawaii if they have poor credit scores. These loans are offered by private lenders but are insured by the Federal Housing Administration (FHA).

The requirements for an FHA loan are somewhat lenient. The minimum down payment is 3.5%, and the minimum credit score requirement is 500. That said, you must have a credit score of 580 or higher to qualify for a 3.5% rate. If your score is less than that, your rate will be around 10%.

FHA loans have fixed interest rates. They also come with 15- or 30-year repayment terms.

You can look up the maximum loan amount for FHA mortgage loans in your county on the website of the Department of Housing and Urban Development (HUD). Knowing the maximum loan amount allowed in your county will be useful if you're interested in obtaining an FHA loan when looking for properties and negotiating with sellers.

The FHA 203(k) program enables homebuyers to pay for both the acquisition of a house and the cost of its renovation using a single mortgage. Additionally, the program permits homeowners to refinance an existing mortgage and use the funds for home improvements.

The 203(k) loan comes in two variants:

• Standard 203(k) loans are for borrowers who need to finance significant structural renovations, such as extensive roof repairs, room additions or plumbing replacement. There is no stated maximum dollar amount for the repairs in the ordinary 203(k) loan.
• Limited 203(k) loans are for quick fixes or cosmetic improvements like new flooring, small kitchen renovations or gutter repairs. The maximum repair amount for the limited 203(k) loan is $35,000 in total.

The 203(k) program can increase homeownership opportunities and aid in local redevelopment by making it easier for homebuyers to purchase fixer-uppers.

In addition to government-backed loans, Hawaii's first-time homebuyer programs that are available only to residents of the state are another option for financing your first home purchase.

The Mortgage Credit Certificate Program provides housing assistance to families that are in low to moderate-income tax brackets. The benefit of these certificates is that they reduce the amount of federal income tax you pay, which frees up more of your income to pay for your mortgage.

Owner-occupants can apply for the First-Time Homebuyer Mortgage Program from HawaiiUSA Federal Credit Union with as little as a 3% down payment. Benefits include lower closing costs, flexible qualifying ratios and income ceilings, as well as the waiving of loan origination fees under certain conditions.

Several state and municipal homeownership assistance programs are available to Hawaii homebuyers through the HUD. These organizations include Habitat for Humanity, Hawaiian Community Assets and the Hawaiian Homes Commission.

To help you become a first-time homeowner in Hawaii, MoneyGeek has answered some frequently asked questions.