Hawaii is home to beautiful beaches, breathtaking volcanoes and dizzyingly high home prices. A tourist's paradise can be a first-time homebuyer's nightmare. From lava zones to coqui frogs to island fever, the Rainbow State comes with many quirks that might surprise outsiders. This step-by-step guide will walk you through the housing and mortgage market in Hawaii, with a focus on programs for first-time buyers.


Defaults and Distance: Mortgage Rates in Hawaii

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Call it the price of paradise but everything seems to cost more in Hawaii, a truism that can apply to mortgage rates. As a "judicial foreclosure state," Hawaii requires mortgage lenders to navigate a complex court process before they can take back homes. In addition, Hawaii's foreclosure rate remains above the national average. What's more, the state's remote location and thin banking market can hamper competition.

On the bright side, federal loan programs are available. No matter what the local market is like, your credit score remains the single most important piece of information influencing your mortgage rate. For a more detailed explanation, visit MoneyGeek's mortgage rates guide.


First-Timer? Consider Hawaii's Tax Credit Program

For a state with a severe affordability squeeze, Hawaii doesn't offer particularly robust options for first-time buyers seeking down payment assistance and other help. The state's Hula Mae loan program, once a go-to option for borrowers, has been on a long hiatus. The main alternative is the state's Mortgage Credit Certificate Program. Administered by the Hawaii Housing Finance and Development Corp., this program reduces your federal income tax bill, thereby freeing room in your budget for housing costs.

With a Mortgage Credit Certificate, you can take 20 percent of your annual mortgage interest as a federal tax credit - which is a dollar-for-dollar reduction in the amount you owe the IRS. The remaining 80 percent of your annual mortgage qualifies for the mortgage interest deduction, the state says.

The Mortgage Credit Certificate Program is only for first-time buyers purchasing a primary residence. Income limits range from as little as $82,400 for two-person families on the Big Island to as much as $140,700 for families of three or more in Honolulu. There are also price limits. You might owe taxes on past credits if you sell the house for a gain and your income rises above specific levels during the next nine years from date of purchase. For more information about mortgage programs in general, see this MoneyGeek guide to resources for first-time buyers.

Financial Help in First-Time Buyers in Hawaii

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High Home Prices Hamper Affordability in Hawaii

Affordability poses a major challenge in Hawaii, a tourism hub with some of the highest home prices in the U.S. Hawaii combines strong demand from vacation home buyers with the constrained supply typical of a chain of mountainous islands. And Hawaii's remote location drives up construction costs. All of those factors conspire against workers in low-wage jobs. The National Association of Home Builders/Wells Fargo Housing Opportunity Index reports a $540,000 median price for all houses and condos sold in the Honolulu metro area in the first quarter of 2016. Honolulu's typical family made $87,900, meaning less than half of homes sold fell in the average buyer's price range.

How Mortgage Rates and Home Prices Affect Monthly Payments

Metro Area Estimated Monthly Mortgage Payment* Q3 2019 (Change from Previous Year) 2018 Median Home Price 2017 2016
Honolulu $3,013 $813,500 (-0.6%) $802,700 $757,300 $733,500

Source: National Association of Realtors Q3 2019 Metropolitan Median Area Prices and Affordability report.
**Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q3 2019, a 20 percent down payment and a 30-year fixed mortgage at 3.75 percent. Figure reflects principal and interest but excludes insurance and property taxes.


High Limits for Federal Programs Boost Amount You Can Borrow in Hawaii

Fortunately, Uncle Sam categorizes Hawaii as a costly real estate market, meaning borrowers can take as much as $765,600 in "conforming" loans through Fannie Mae and Freddie Mac in 2020. In much of the United States, the cap for Fannie and Freddie loans is $510,400. As a result, many borrowers in Hawaii can avoid jumbo loans, which typically exact higher rates and include more onerous qualifying guidelines than conforming loans. Hawaii borrowers also benefit from higher FHA loan limits. The FHA caps vary by island, but in Honolulu, the state's major housing market, the FHA limit is $721,050 for 2020.

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Buying a Home in Paradise: Experts Weigh In On Hawaii Market


Peggy Yuan is owner of Lava Rock Realty. A longtime real estate broker, she speaks Japanese, Mandarin and Taiwanese.


Katie Minkus is director of sales at Hawaii Life Real Estate Brokers, a 200-agent firm with offices on four islands.

Hawaii is known for steep home prices. What's the state of the market now?


People come here, and they don't understand why everything is so expensive. We're living in the middle of the Pacific. We're 3,000 miles from the nearest continent. When you have an island, and there's only limited space, property values are going to go up.


We've seen recovery from the recession in most markets. Oahu in particular has continued to see appreciation and currently has the highest median prices ever, currently around $760,000 for a single-family home, and $413,000 for a condo.

What's the biggest challenge for buyers in Hawaii?


We have a lack of affordable housing. Somebody has to clean the hotel rooms, and those workers need a place to live. But where is a hotel worker going to live? The cost of living in Hawaii is extremely expensive. Part of our struggle is to keep our native people here. A lot of them moved to Oregon for a lower cost of living, and after they've been gone for a few years, they can't afford to move back.


Everyone thinks they want to move here, and many want a deal. There are no deals in Hawaii — there never really have been, regardless of strength of the market.

What advice do you give first-time buyers?


We have a lot of people who come over here for jobs. My suggestion is always to rent for six months before you buy to see if you like it. Sometimes newcomers get what we call island fever. They buy, and after two months they hate it. Also, make sure you have savings, and a good FICO score. Don't go out and get a $500 car payment when you're trying to qualify for a mortgage.


First-time homebuyers need to hire a Realtor to assist them through the process. Right now, most of the lower-priced properties in Hawaii sell quickly, and often with multiple offers. It's important they have an agent helping them to structure their offer so theirs is chosen. Otherwise, it's an exercise in frustration.

What are some of the challenges unique to Hawaii's housing market?


We have different islands. The Big Island is so different from Honolulu or Maui or Kauai. We're on the Big Island, where prices are cheaper, and I have a lot of clients who are moving from Honolulu, because prices got to be where they couldn't afford it. But we're very rural. We don't have big cities or nightlife. We have one mall.


Hawaii has two different kinds of markets. Most of Oahu, for example, is a mainland market, with people moving around for all the traditional reasons. The rest of the state's market is mostly resort, investment and second-home markets, which means a lot of vacation rental properties. So a buyer may decide they love resort living and buy a property, only to realize that they don't have any full-time neighbors — everyone is staying for a week's vacation. So there's no real community, and sometimes absentee owners don't keep their properties up to the same degree that full-time owners will. On Hawaii Island, there is an active volcano, so every property has been classified in a Lava Zone. We also have disclosures around coqui frogs — a very loud invasive species — and on all islands you can still buy a house with a cesspool or septic instead of sewer.


Highest in the Nation: Closing Costs Add Up in Hawaii

Hawaii has the highest closing costs in the country. Borrowing $200,000 means you'll fork over $2,163 in closing costs, this Bankrate survey declares. Survey fees tend to be especially steep, owing to the quirks of Hawaii's market. Buyers sometimes encounter Native Hawaiian land claims that must be settled. Chain of title here is not necessarily as clear-cut as it is back in the continental U.S.

But locals take it all in stride. "Here in the middle of the Pacific, things just are what they are," Minkus says. "You can't compare Hawaii to the mainland, so we don't." For more about these pesky expenses tacked onto the cost of buying a home, see MoneyGeek's closing costs page.

Average Closing Costs in the Aloha State

Average Origination
Average Third-Party
Average Total Closing

Source: Bankrate's 2015 survey of closing costs.

Refinancing a Mortgage in Hawaii: Big Savings, But Mind the Closing Costs

Hawaii's combination of large mortgage balances and strong price appreciation create compelling conditions for refinancing. Say you have a 30-year mortgage for $500,000 at 5 percent interest, with a monthly payment of $2,147. Refinancing for the same amount and term at a 3.5 percent rate will lower your payment to $1,796, a savings of $351 a month. Hawaii home prices rose 32 percent from late 2014 to late 2019, so most homeowners have plenty of equity. Mortgage rates were at rock-bottom levels in late 2019, and the bigger your mortgage balance, the more you can save by refinancing.

Another opportunity for savings: If you used an FHA loan to squeak into Hawaii's pricey market, this might be an opportunity to trade the FHA program's steep mortgage insurance premiums for a conventional loan. So long as your loan-to-value ratio remains under 80 percent, you won't have to pay mortgage insurance.

But remember, closing costs in Hawaii are steep and will eat into your savings, and Hawaii's quirky market can throw complications into loan approvals. Some homes have septic tanks rather than sewer lines, and the island of Hawaii's active volcanoes mean homes there must be rated for lava risk. For more information about refinancing in general, see MoneyGeek's refi guide.

Other Resources for Borrowers in Hawaii

Hawaii Mortgage Credit Certificate

This state program lets you take advantage of a federal income tax credit. The state's brochure sets out income limits and loan limits.

Hula Mae mortgage program

On hiatus, this Hawaii Housing Finance & Development Corp. program allowed first-time buyers to take out loans with 3 percent down. However, this guide includes phone numbers for lenders who work with first-time buyers.

Hawaii HomeOwnership Center

This nonprofit offers loans to first-time buyers. Terms include just 5 percent down and no mortgage insurance through a second mortgage.

University of Hawaii loan program

Acknowledging its professors struggle to afford homes in Hawaii, the school began offering employees mortgages with low down payments, closing costs, interest rates and loan fees for first homes.

City of Honolulu down payment assistance

The city in 2015 began offering interest-free loans of up to $40,000 to cover down payments for low- and moderate-income families.

Loans for Native Hawaiians

Poverty is a challenge for Native Hawaiians. The Office of Hawaiian Affairs helps members of this population become creditworthy and better at managing finances with a goal of homeownership.

Department of Hawaiian Home Lands

This state agency focuses on financing for home construction for Native Hawaiians.