Buyer Frequently Asked Questions

How Much Home Can I Afford?

One of the first things you will want to do is determine which homes fall into your price range. Since most mainland lenders will not hold Hawaiian property as collateral, you will have to apply for a mortgage loan in Hawaii. A local lending specialist can assist by "pre-qualifying" you and/or arranging a "pre-approval" certificate that you can present to home sellers. During the pre-approval, they will take your credit and employment information and, for a small fee, obtain a detailed credit report. Pre-qualifying and pre-approval can speed up your entire home buying process.

What is the Loan Approval Process?

The next step to speed up the application and approval process is by having the following list of documents available at the time you make your loan application:

What do Leasehold and Fee Simple mean?

If you purchase a fee simple property, you own the land and the improvements upon it.

If you purchase a leasehold property, however, you are buying a lease for the land and, usually, you own the improvements. A residential leasehold might have been set for 55 years but if the ground lease is 30 years old, there would be 25 years left on the lease. Most banks require a minimum number of 10 years remaining on the lease before they will agree to lend on the property, and that a loan will be granted on the balance of the years remaining, i.e. 15 years in this case. Some require that the lease be renegotiated with the ground lessor, often a family trust or large landholding estate. This can take more time than you expect and, in fact, lessors are not obliged to extend or renegotiate the lease. Some leasehold properties e.g. condos offer a fee conversion, to convert the leasehold property to a fee simple property. This can be at the time of purchase, or at a later date, at a price determined by the lessor.

With all this, why would anyone buy a leasehold property? Because it is often less expensive to purchase and the lease is depreciable, which may have some tax advantages for you.

If you contemplate buying a leasehold property, be sure to determine the renegotiation date as it may occur shortly, especially if the price appears to be a bargain.

As always, before purchasing any property, you should consult with your tax advisor and your attorney about how to protect your tax position and your estate.

Do I Need a Home Inspector?

The buyer of property is entitled to have a licensed, professional inspector look at the property and issue his inspection report. This inspection is paid for by the buyer. We cannot stress enough the importance of having the property inspected by a licensed home inspector. Your agent is not a roofer, electrician, plumber or contractor. Only a licensed professional can give you an informed report detailing the exact condition of the property. The obligation to purchase the property is contingent upon the buyer's approval of the results of such inspection within a specified number of days after the contract acceptance date.

What should I expect to pay in closing costs?

A good rule of thumb is 2% of the purchase price. Buyer and seller costs are listed in the standard terms of the sales contract.

Additional items may be negotiated as special terms of the contract e.g.. furniture or other personal property. Individual situations can differ substantially, depending upon variables such as the level of market activity, the condition of the property and your motivation to buy. Your agent will give you a fairly close estimate and will work to make sure you are paying a fair price for the services provided.

What is Home Tax Exemption?

Hawaii law provides home exemptions for property tax purposes. The exemption serves to reduce the taxable assessed value of your property, thus reducing the property tax liability each year. The exemption is available only for owner occupied property as of January 1 each year. You need to apply only once. Every owner-occupied property is entitled to the basic home exemption of $40,000. A multiple home exemption was established to lighten the tax burden on senior citizens who have relatively fixed retirement incomes. Senior citizens who are 60 years or older are eligible to apply.

Age 60 to 69 = 2x basic home exemption =$80,000.

Age 70 or over = 2-1/2x basic home exemption = 2-1/2xX 40,000 = $100,000

Claims for exemptions may also be filed by totally disabled veterans, Hansen's Disease victims, the blind, deaf and totally disabled, and charitable organizations using their property for non-profit purposes. For more Information on Home Exemptions call (808) 327-3540. To obtain the multiple home exemption, a taxpayer must be 60 years of age on or by January 1, preceding the tax year for which the exemption is claimed.

What are Contingencies?

The buyer's obligation to buy the property is subject to the satisfaction of a number of contingencies in the contract. These contingencies are terms in the contract which must be satisfied by a time specified in the contract. All satisfaction of contingencies should be done in writing within the time frame set forth in the contract. Technically, if a contingency is not satisfied within the specified time period, that contingency may be deemed to have been waived. Each party to the contract should understand the importance to act upon each contingency according to the strict deadlines described in the contact. Failure to do so could result in an unwanted result.

Your real estate agent is there to handle these contingencies on your behalf and keep you informed of the escrow's progress. If you have any questions regarding your contract contingencies, be sure to ask us!

Do I need a termite inspection?

We live in the tropics, and termites are a fact of life. A termite inspection is required by your lender just prior to close to determine if the property has evidence of live termite infestation. If termites are found, the property will be treated. Usually, the seller pays for both the inspection and any treatment required prior to close of escrow.

What does CPR mean?

In Hawaii real estate, CPR stands for “condominium property regime” and is most commonly heard when referring to a number, the “CPR number”, which identifies one condominium property from another for tax and sales purposes.

A single-family residence, for example, has a five number Tax Map Key (TMK) such as 3-8-43-21-10, which refers to a specific piece of land and everything on it. Because condominium ownership includes a percentage interest in the land with other owners, the Tax May Key has a sixth number, the CPR number. This identifies a specific apartment in a high rise or a portion of a lot when land is “condominiumized.” Thus a condo TMK number looks like this: 3-8-42-21-15-001

How should I take title?

Because of the implications for your estate and tax status, we urge you to discuss this question with your tax advisor, attorney or estate planner.

Call us Toll free at 877 329-6871 or locally at 329-6871 for friendly, reliable service

Real Estate Consultants of Kona • P O Box 4711, Kailua Kona, Hawaii, 96745, US. Harold Meltzer Broker