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Closing costs in Hawaii

Here’s everything you’ll want to know about buying your island dream home.

If you’re considering buying a house in Hawaii, you might be wondering how much to set aside for closing costs. On average, closing costs in Hawaii are between 0.96% and 1.12% of the property price. Keep reading to learn more about the closing costs and process for buying property in Hawaii.

Average closing costs in Hawaii

Closing costs are the administrative and legal fees a property buyer will incur when finalizing a home sale. Property insurance, prepaid utility bills and title insurance are a few of the expenses that are typically included in closing costs. It’s important to estimate closing costs because they can be several thousand dollars.

Average closing costs in Hawaii are US$6,746 after taxes as reported by ClosingCorp. This amount works out to be between 0.96% and 1.12% of the property price. Average home prices in Hawaii are between US$600,000 and US$700,000.

Other fees

Typical closing costs in Hawaii include the down payment, financing fees, property inspection, hazard insurance, escrow fees, title insurance and documentary stamps for the note. These costs can be difficult to estimate, so it’s important to set aside some funds to cover these expenses.

Foreign buyers are subject to special taxation in Hawaii. Under the Foreign Investment in Real Property Tax Act (FIRPTA), non-US citizens are required to pay between 10% and 15% of the sale price from the seller’s proceeds at close of escrow. This ensures US taxes are paid on the gain of the property. When the tax return is filed, any overpayment is returned.

Hawaii also has a state tax that is withheld at the time of purchase. The Hawaii Real Property Tax Law (HARPTA) states that 7.25% of the sale price is withheld upon closing.

Finally, if you are buying a house in Hawaii with the intention of renting it out, 30% of your rental income will be withheld. This ensures that US taxes are paid on the rental income. The only exception to this rule is if the Canadian buyer has a Taxpayer Identification Number (TIN). A TIN is also required if the foreign investor wants to sell the property in the future. It is not always required immediately to purchase a property.

Down payment and exchange rates

As a Canadian, you’re a foreign buyer. Usually, this means a higher down payment is required if you’re buying property in Hawaii, and you can expect to have to put down at least 30%.

It is likely that Canadian buyers will pay closing costs and down payments in US dollars, so keep the exchange rates between Canadian and US dollars in mind.

Who pays closing costs in Hawaii?

The buyer and the seller split the closing costs in Hawaii. Below is a breakdown of who pays for what during the closing process.

For the buyer

Title insurance40% of the cost
Financing feesVaries, but usually includes interest, note preparation and origination fees
Property inspection (optional)Varies
Homeowners insuranceVaries
Property taxesVaries
Homeowners association feesVaries
Government recording feesDeed, mortgage recording, etc.
Escrow fees50%
Title document preparation fee50%
Notary feesVaries

For the seller

Title insurance60% of the cost
Termite inspectionUS$700
Prorated property taxesVaries
Prorated homeowners association feesVaries
Government recording feesFor liens on the title
Escrow fees50%
Title document preparation fee50%
Sale documentation preparation feeVaries

Who pays for title insurance in Hawaii?

Sellers typically pay 60% of the cost and the buyer pays the remaining 40%. However, the buyer is responsible for choosing which title insurance to buy.

How do Canadians get a mortgage for a US property?

Obtaining a mortgage for US property from a Canadian lender isn’t always an option depending on where you are buying. Some Canadian lenders don’t have legal jurisdiction in the US, which is why they can’t offer a mortgage. The only exception is if the Canadian lender also operates in the US. If this is the case, the creditor may be able to help you with buying a house in Hawaii. Ask the lender if it has jurisdiction in the state you want to make a purchase in before completing an application.

Another option is working with a US lender. Because Hawaii is a popular destination for Canadian snowbirds, finding a US lender who will work with you won’t be challenging. However, it can be challenging to get approved. Consider working on your US credit, building a bigger down payment and creating a six-month reserve for your upcoming mortgage payments. These actions can increase your odds of approval.

What to know about owning property in Hawaii

Hawaii has various unique terms for condos and similar properties. Specifically, your property will be either fee simple or leasehold. Check out the definitions and implications of each below.

Fee simple ownership

Fee simple ownership means the buyer purchases the entire property, including the dwellings and land. The investor is allowed to enjoy all aspects of the property provided they don’t violate local laws, such as zoning, deeds or covenants. Fee simple ownership is the most common type of property purchase in Hawaii for snowbirds and locals.

Leasehold interest

Leasehold interest means the buyer purchases the improvements or structures on the property, but not the land. Instead, the investor is leasing the land but retains ownership of the leasehold improvements.

Since the investor doesn’t own the land, they are required to purchase the right to use it and therefore must pay rent. The lease period is not infinite either. At the end of the term, the rights to use the land are returned to the owner. Lease terms can be renewed or adjusted. This means the amount of rent can increase or decrease. This form of ownership is less common in Hawaii. However, investors may choose this option because it is significantly cheaper than fee simple ownership.

Bottom line

The average closing costs in Hawaii are US$6,746, or 0.96% to 1.12% of the final purchase price. If you are considering buying a house in Hawaii or another US state, be sure to set aside funds to cover the closing costs.

Frequently asked questions

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