Hawaii residents looking to buy their first home will see prices lower than historically seen - thanks to a sluggish real estate market. Nonetheless, compared to most other states, real estate is more costly in Hawaii due to its desirable climate and the fact that it is not part of the U.S. mainland. First time home buyers with limited resources need as much help as they can get; fortunately, there are several home buyer programs in the state designed specifically for this purpose.
The HHFDC
The Hawaii Housing Finance and Development Corporation is the state agency responsible for administering affordable housing and financing in Hawaii. It operates as part of Hawaii's Department of Business, Economic Development, & Tourism. The agency currently lists three programs available in the state to help first-time home buyers as well as others who might qualify under certain circumstances. Some of these programs may be restricted or temporarily suspended due to the state's economic circumstances.
Hula Mae Loan Program
The Hula Mae loan program was developed by the Hawaii Legislature in 1979 as a means of providing affordable home loans to state residents in the low and middle income brackets. The home loans made under this program have interest rates well below those of standard or conventional loans. There are restrictions regarding who qualifies for the Hula Mae loan and what homes it can be used for, so interested consumers should check with their lending institution for details.
The Hula Mae home loan is typically a fixed-rate, 30-year mortgage where 2 points are applied; the buyer and seller each pay one point. The loan must be used to purchase a new or existing single-family home or condominium within the state of Hawaii. It cannot be used to purchase investment properties or commercial real estate. There are also restrictions regarding the price of the homes you're considering, which is determined by geographical location.
Mortgage Credit Certificates
Mortgage credit certificates is a program administered by HHFDC in which new homeowners are eligible to reduce the amount of federal income tax they must pay, thereby making them eligible for a higher home loan amount. The program does not provide any direct assistance in the same way a loan or cash grant would, but being eligible for a higher loan amount means a greater likelihood of approval for a loan of somewhat lower value. There are certain restrictions to this program.
Applicants may continue to claim this credit throughout the entire life of their mortgage as long as the home remains their primary residence. They also may not have had an ownership interest in any other home in the three years prior to application. Since the federal government considers the tax credit to be a subsidy, if approved homeowners sell their homes within the first nine years of ownership they may be subject to federal "recapturing" of the money saved by the credit. Finally, mortgage credit certificates can only be used towards new loans.
Downpayment Assistance Loan Program
Hawaii's down payment assistance loan program is currently listed as temporarily suspended. The state hopes to revise this program as soon as possible, as it provides vital assistance to the state's first-time home buyers through state-funded loans to cover down payment and closing costs. It is considered to be the same as a mortgage, and is in fact, entered against the home as a second mortgage. It is paid back within the first 15 years of home ownership.
There are certain restrictions to the down payment assistance loan program. For example, applicants must provide their own cash contribution of at least 3% of the home's value at closing. Applicants also must make the home they purchase their primary residence throughout the life of the loan. Failing to do so could cause a default which would require the entire loan amount due immediately.
Other First Time Home Buyer Programs in Hawaii
From time to time HUD offers various types of assistance to first time home buyers depending on income and other circumstances. When such assistance becomes available it is administered through the FHA or a state program. In fact, any housing assistance made by the federal government goes through HUD or various states block grants rather than directly from the federal government themselves.
Occasionally you may also find your particular state or local municipality is offering housing assistance for first time buyers. At the state level these programs will be administered by whatever department is charged with housing and financing. At the local level, your city or county may offer low-interest loans or other incentive programs as a means of selling off vacant and abandoned homes. With all of these alternative programs your best bet is to check with your real estate agent or mortgage broker to get the full details.