Here Are Answers To Many Frequently Asked Questions
Q. I just moved to Maui and I wonder whether I should buy a place or rent.
A. One of the advantages to renting is not having to worry about maintenance and other financial obligations of property ownership including the cash outlay that you must initially make when you purchase. However, when you buy a home there is the possibility that you could sell it later for more than you bought it. This possibility of course, depends on the market appreciation at the time when you decide to sell. If you cannot time your sale when you want to, you may have to sell your property at a loss. Home ownership also brings with it maintenance headaches and loan costs beyond what renting costs. But unlike renting, home owners who obtain a fixed-rate loan can establish their monthly housing costs and do some wise financial planning. As home owners know, owning your own property brings a lot of satisfaction and enjoyment. Before any home investment is made, however, a thorough consideration must be made of the community where the home is located and the needs of the family who will live there.
Q. My home that I bought a few years ago has become too small for my family. Should I add on or look for a new house?
A. There are always homes on the market that will tempt you to move to a new home to satisfy the growing needs of your family. The major considerations as to what route you take depend on the following:
How much money is available to you either with a home improvement loan or cash
- Will the building ordinances allow you to add on to your present home as you would like
- Would the structure and design of the present home allow for the desired expansion
- By adding on to the home are you creating a value that is beyond that which can be obtained if you decide to sell it
- Are there other properties available that will fulfill the increasing needs of your family located in neighborhoods that will accommodate your work, school and recreation considerations
Once you answer these questions you will be better able to make a decision as to whether you can in fact remodel and satisfy the growing needs of your family or whether you should look for a new home.
Q. We have just started to look for a home and most of the houses that we see are so tiny and not what I had in mind at all when we moved to Maui. My husband says that we have to start somewhere. Is he right?
A. Getting started by buying a home smaller than you had in mind may be a good way to take the first step into home ownership as long as you keep in mind the basics. Is the home in a community where you want to live and convenient to your needs: schools, shopping, commute, and so on? How much will it cost to make the house livable to your standards? How does the price of this home compare to other homes that are like it in the neighborhood? For most people their first home will not be their last but rather, a stepping stone to their dream home. An experienced real estate professional can show you homes in your price range and through careful research, you can make a wise choice.
Q. How important is a home inspection when I am purchasing a home on Maui?
A. Without a doubt a home inspection is one of the most important things that you should have done before you make a decision as to whether you are going to purchase the home that you have selected. A professional home inspection is an objective visual examination of the physical structure and systems of a house, from the roof to the foundation. Through the inspector’s report you can find out whether there are repairs needed and what maintenance is required to keep the property in good shape. This will give you the confidence to make the decision about buying the property. In Hawaii, if you request it, you have an opportunity to ask for a Home Inspection and make a decision after a thorough inspection of the property whether to continue with your purchase or cancel the purchase.
Q. Where I come from there are hardly any condominiums but in Hawaii I notice that there are many. I have always lived in a house and never in an apartment. What should I consider if I decide that I might want to buy a condominium?
A. If you have only lived in a house and not in an apartment living in a condominium is quite an adjustment. Depending on the size of the condominium development, you may be living very close to hundreds of strangers and sharing a common wall with another family potentially dissimilar from yours. On the other hand, in a place like Hawaii where land is so limited and views and oceanfront property so desirable, you maximize your chances of being able to capture those amenities if you elect to purchase a condominium. Be sure that you read through your rights as an owner of a condominium before you purchase by reviewing all the condo documents including the Declaration, CC&R’s, By Laws and House Rules, among others. You ask for these when you make an offer to purchase a condo. You should decide whether you are going to live there all the time or whether you want to rent it out and stay in it on vacations in Hawaii. There are strict zoning laws that govern what can be done where. You will rely on your real estate professional to inform you as to what is allowed where you intend to purchase. Be sure that you consider the maintenance fee which is also charged by a condominium for the upkeep of the common elements. You should add that as a cost to your mortgage and property taxes of payments that you must make when buying a condominium.
Q. How do I know how much I can afford to pay for a house?
A. You should talk to a lender whom you trust. Ask your Realtor® to take you to see a lender who can look at your income and expenses as well as how you handle credit and prequalify you for a loan or even pre approve you for a loan before you even go out to look at property. There are other factors which enter into how much of a loan you qualify for but these are the most important.
Q. How much is the closing cost for buyers and sellers? What does closing cost mean?
A. Closing costs are the costs that are associated with closing the transaction such as the cost of obtaining a loan, the fees charged by escrow to do the title search to make sure that the buyer receives clear title and other costs some of which the seller will pay and some of which the buyer will pay. These are all added up and the buyer and seller both pay their share of these costs, depending on who is supposed to pay it before the property changes hands at closing. So the buyer must expect to pay closing costs in addition to the down payment requirement in order for him/her to get a loan and the sellers must expect to pay closing costs which will be charged to them and subtracted from the amount that they are to receive from the buyer. I know that it sounds a little complicated but escrow gives both the buyers and sellers an accounting of all the expenses and credits so that each knows how much they are charged. Closing costs are typically between 2%-5% of the mortgage amount.
Q. Does the closing cost get added to my mortgage loan or do I pay cash for it?
A. Closing costs are paid in cash and thus added to the down payment amount or cash amount the buyer must have to pay for the property. In the case of a seller, the seller’s closing costs are expenses that have to be deducted from the amount that the buyer gives the seller for the property so the seller has to be sure that they know how much the closing costs are going to be for them to be able to pay off their existing loan plus the closing costs with the money that the buyer is going to give them.
Q. How much down payment do I need?”
A. The amount you need for down payment depends on the difference between how much of a loan you can get to buy a particular property and the purchase price of the property. The loan amount that you can get depends on what percentage of the sales price or appraised value, (whichever is less) that the lender will lend you to buy a property. It also depends on how much you qualify for based on your income, expenses and credit report. So let’s say the lender will require 10% down payment because the lender will lend you 90% of the value of the property. So your down payment must be 10% of the purchase price and don’t forget the closing costs which you have to add on to the down payment in order to figure out how much cash you need to buy the property. And you must be able to qualify for the 90% loan based on your income, expenses and credit report.
Q. What will my monthly payments be? How is my monthly payments calculated?
A. The amount of your monthly payment is a very important figure to you because most people use it to determine whether they feel that they can afford the house that they want to purchase. It is one thing to be able to qualify for the loan but it is also important that the buyer feel comfortable with the monthly payment that he or she will be expected to pay once they get the loan. Monthly payments are calculated depending on what kind of loan you get. If you get a fixed rate mortgage amortized over 30 years, for instance, you get a loan that has a monthly payment based on the loan amount at a set interest rate and you pay the same amount every month and at the end of the 30 years with the last payment your loan is completely paid off. There are tables and financial calculators which tell you how much your monthly payments will be over the life of the loan. There are also other types of loans where the monthly payments are calculated differently and there may be a large payment at the end of the term of the loan that you would be expected to pay by either selling the property or refinancing it.
Q. How many lenders should I talk to about getting a loan before deciding which lender to go with?
A. Good question. There is no specific number of lenders to talk to. If you have a relationship with a bank where you do business, that may be a place to start. There are other companies that specialize in making property loans and they may be able to offer you a nice variety of loans to fit your needs as well. Your REALTOR® will be able to help you select lenders with whom they have worked so you can interview them and see what they can do for you. There is a lot more than shopping for good interest rates because some lenders will help you get a loan that other lenders will not be able to do. This is because the underwriting standards, or the analysis of the risk of lending the buyer money, differs among lenders.
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