beach house in Hawaii

Buying A House In Hawaii: Where, When, Why And How

Katie Ziraldo7-minute read
August 04, 2021

Both environmentally and culturally, Hawaii is widely considered one of the most desirable vacation destinations in the United States. But if you’re looking for a more permanent stay in this tropical oasis, buying a house in Hawaii may be the way to go.

Before the excitement takes over, it’s important to note that making the move to island living is more involved than moving between states on the mainland. In this article, we’ll explore the benefits of purchasing property in Hawaii, important considerations to keep in mind throughout the process and some of the top-performing real estate markets to watch.

Why Buy A House In Hawaii?

With countless tourist attractions and a year-round warm climate, it’s easy to understand the appeal of living in Hawaii. But aside from all the state has to offer, Hawaii real estate can also be a solid investment for rental properties, as the state is the second most popular travel destination in the country, according to Business Insider.

Property Tax Exemption

Homeowners with a primary residence in Hawaii may be eligible for a property tax exemption, which was put in place to encourage settlement of this land. Beginning in the 2020-2021 tax year, this home exemption is equal to $100,000 for homeowners under the age of 65 and $140,000 for those 65 and older. Homeowners are eligible for this exemption if they occupy their Hawaii home for more than 270 days in the calendar year.

Hawaii Renewable Energy Technologies Income Tax Credit

The exorbitant cost of energy on the Big Island of Hawaii is often overlooked. With the highest energy costs in the nation, many homes in Hawaii do not come with forced air conditioning. The cost of A/C, particularly at a lower elevation, can be astronomical – so prospective home buyers coming from other states will have a simpler transition by choosing a home that’s located in the 700-1500 elevation range, as these homes experience lower natural temperatures and require less air cooling. Although these homes are often more expensive to purchase, buyers will save a significant amount month to month on their energy spending.

For homeowners who want to make their homes more energy-efficient, Hawaii also offers multiple state-sponsored initiatives, including income tax credits and property tax incentives in certain counties. In order to benefit from these incentives, the home must meet a certain percentage of renewable energy output, most often achieved through solar panel systems.

When To Buy Property In Hawaii

If you’ve decided to move to Hawaii, you’re probably eager to kiss the mainland goodbye and say hello to all the advantages of island living. But before you jump the gun, it’s important to understand that timing in the housing market can mean a difference in thousands of dollars in savings. The market goes through regular ebbs and flows but is also impacted by unpredictable events, such as the long-term effects of the COVID-19 pandemic.

With historically low interest rates, real estate prices in Hawaii have increased and home inventory has decreased consistently over the last 12 months – ultimately leading to a peak seller’s market. It’s difficult to predict exactly then this will shift. The Hawaii government produced a report suggesting an expected 19% population growth by 2025, which certainly implies there is no shortage of individuals looking to move here. Still, as we continue to see the long-term impact of COVID-19, it’s expected that mortgage rates will begin to rise, which may deter some from pursuing homeownership for the time being.

How To Buy A House In Hawaii

In general, the requirements of buying a house in Hawaii are standard, but there are a few unique considerations to keep in mind when choosing a property. Even if you’ve gone through the mortgage process before, it’s always a good idea to review the following to ensure you’re prepared each step of the way.

  • Good Credit: This is one of the key factors that lenders will use to qualify you for financing. Most mortgage types require a credit score of 620 or higher for approval.
  • Low Debt-To-Income (DTI) Ratio: Lenders consider DTI to determine if you can realistically commit to mortgage payments. This percentage is your monthly income divided by your minimum debt payments.
  • Financial Documentation: In a competitive market, it’s more important than ever to be prepared ahead of time with the documents your lender may ask for, including proof of income, tax returns and bank statements.
  • A Local Real Estate Agent: Especially in Hawaii, it’s crucial to find an expert who can point to local lenders that can transfer funds more quickly than mainland banks.
  • Home Appraisal: This step determines the home’s value, which is an important part of the closing process as it confirms the amount the lender is willing to put forward.
  • Down Payment: This is the lump sum of money you pay at closing to secure your home, and it plays a role in determining your ability for mortgage approval as well as your interest rates.
  • Closings Costs: These costs cover many things, including the origination fee for processing the loan, property taxes, appraisal fees and more. When saving for a down payment, remember to save for closing costs as well.
  • Lava Zones: Finding funding in active lava zones will be challenging, so be sure to consider this factor when choosing a location. In general, West Hawaii is considered a less hazardous lava zone as it has not experienced an eruption in a long time, so it may be easier to obtain financing.
  • Leasehold Real Estate: As opposed to the mainland – where buyers typically purchase property, receive the title and have ownership authority over the land – much of Hawaii is owned by the government or specific landholders, who often lease large land parcels instead of selling to remain control of land development. When buying property, be sure to ask about any potential leaseholds on the land so you understand what you can and cannot do.

Special Programs

Many first time home buyer programs, such as VA loans, FHA loans and USDA loans, are available across the U.S. However, most housing programs in Hawaii are meant for Natives, who have witnessed their home state become exorbitantly expensive over recent years. Still, there are a few routes non-Native home buyers can take that may lighten the financial load of purchasing a Hawaiian home.

Military Benefits

Those who qualify for a VA loan should consider it their best option for purchasing a home in Hawaii, as these loans typically come with higher loan limits. In fact, as of 2021, there’s no loan limit associated with VA loans, as long as the borrower is preapproved. With 11 military bases in Hawaii, this is an appealing option to many potential buyers.

HUD Homes For Sale

A HUD home is a residential property acquired by the U.S. Department of Housing and Urban Development (HUD) as a result of a foreclosure on an FHA mortgage. When HUD takes ownership of a property, it attempts to resell it to recover what was lost in the foreclosure. HUD homes for sale can be found on the HUD website, and any buyer with a qualified loan is eligible to purchase these properties.

Top 5 Real Estate Cities In Hawaii

So you’ve officially decided to move to Hawaii. Congratulations! But what regions have the most to offer? The following is a list of the Rocket Homes® five top real estate cities in Hawaii.

Captain Cook

Captain Cook

Named after Captain James Cook, the first westerner to land on the island of Hawaii in 1778, this quaint town is situated on the western side of Big Island. Unlike some larger cities on this list, Captain Cook is the quintessential small town, with only a few hotels and stores, which means it offers a truly authentic Hawaiian experience. But don’t think this means there isn’t plenty to do – from snorkeling, to sailing, to exploring the nearby State Historical Park of Kealakekua Bay, there’s never a dull moment here.

Kailua-Kona

beach house in kailua-kona

Kailua-Kona is the largest town on the west side of Big Island, sitting at the bottom of the Hualālai Volcano. The city has a rich history, as it was once considered the ideal place to live on the island, popularized by kings who chose this location to build their homes. Today, these historical sites are blended seamlessly with tourist attractions, making this the ideal location for rental properties. Plus, Kailua-Kona is guaranteed to have an influx of visitors at one specific time of year – the famous Ironman Triathlon.

Keaau-Mountain View

Mountain View in Hawaii

The Keaau-Mountain View region is located toward the east side of the island and is only about 20 minutes away from the city of Hilo and the Hilo International Airport. Based on the name, it’s no surprise Mountain View is known for its iconic skyline, which features one of the world’s tallest dormant volcanoes, Mauna Kea. Recreation opportunities include vast biking and hiking trails, ATV tours and exploring historic landmarks like the Mountain View Theater.

North Kona

beach house in north Kona Hawaii

As the name implies, North Kona occupies the northwest side of Big Island. Stretched along the shoreline of the Pacific Ocean, this region offers numerous resorts, trails and a state park known for its ample opportunities for swimming, surfing, fishing and more. And if you’re looking for more than beach activity, the area is also home to lava fields where visitors can snorkel with sea turtles and enjoy some unique sights between black sand beaches and the Mauna Kea and Mauna Loa volcanoes.

South Kohala

beach house in south Kohala Hawaii

In the Gold Cost of the Big Island, South Kohala is one of the most historic regions in Hawaii, featuring preserved temples, village sites, petroglyphs and trails for locals and visitors to explore. Several beaches here offer recreation areas, and considering the reef drops off more gradually than those elsewhere on the island, it’s not uncommon to see sharks, dolphins, turtles and other marine life.

The Bottom Line: Challenging Buying For Easy Living

Making the move to Hawaii is likely to be more challenging than any other state in the U.S. – but don’t think that means it can’t be done. By choosing the right property, finding a local real estate agent and leveraging local incentives, this tricky home buying process can be made simpler. And once you’re a Hawaii homeowner, there’s nothing left to do but sit back, relax and enjoy all that these islands have to offer.

If you’re ready to take the next step, begin browsing houses to buy in Hawaii today and remember that the best way to ensure a smooth home buying process is to work with a Rocket Homes Verified Partner Agent.

You know your dream home.

We’ll help you find it.

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    Katie Ziraldo

    Katie Ziraldo found her love of writing through her experience working with various newspapers, such as the Detroit Free Press. Her financial literacy stems from her four years as a Recruiter, when she learned the details of every role in the mortgage process. As a writer, she uses that knowledge to create relevant content for homeowners to help them reach their goals.