Canadian Buyers Guide

If you are a Canadian National, or international home buyer interested in investing in Hawaii real estate on the islands of Maui, Oahu, Kauai, Big Island, Lanai or Molokai, here are a few tips from Brad Hill and Pacific Home Loans to prepare you with your real estate purchase and loan financing.

We have also included information on what fees you can expect from Pacific Home Loans, as well as those from the escrow and title company. There is a brief explanation on the FIRPTA and HARPTA withholding required for sellers that live off-island and why you may need a Tax Identification Number in the event you plan on renting out your Maui real estate investment.

Financing

All financing information has been provided by Pacific Home Loans of Maui Hawaii. To discuss available loan options for Canadians and foreign investors, contact Steven Mangum today.

• Common Loan Program Types
  • Most US mortgages are amortized over 30 Years.
  • One of the most popular programs with Canadians is a Hybrid Adjustable Rate Mortgage. They are fixed for 5, 7 or 10 years.
  • Most mortgages in the U.S. do not have a pre-payment penalty. If they do, it is usually no longer than 12-24 months long.

• Down Payment Requirements - Single Family Residences and Conforming (Non Vacation Rental) Condos.
  • 20% down to $625,500 loan amount
  • 30% down to $850,000 loan amount

• All Property Types Including Condo-tels
  • 35% down to $1,000,000 loan amount
  • 40% - 50% down to $5,000,000 loan amount

• Income Verification
  • Mortgages in the United States require full income documentation for at least 2 years.
  • Required docs include T-1’s, T-4’s and corporation/business returns and current pay stubs.
  • There is one program which allows asset depletion to assist with this qualification, a great option for the self employed, recently retired and those with strong assets.

• Asset Verification
  • Requires complete liquid assest documentation with 2-3 months of bank, stock, retirement and mutual fund statements.
  • There may be situations where 100% of retirement accounts cannot be utilized.

Closing Costs

Closing costs in the United States are different than in Canada and other countries.

• Escrow/Title Fees - Charges by the title and escrow company can include: notary, property taxes, conveyance tax, transfer fee, deed, recording fee, association dues, maintenance fee, inspections, title policy and escrow fee.
• Lender Fees - Underwriting, loan docs, admin, appraisal, credit report, processing, funding... some or all of these may be applicable and will be disclosed with our initial Good Faith Estimate.
• Points - Points are a fee (1 point equates to 1% of loan amount) that has a direct relationship with your mortgage rate. The higher the points, the lower the rate and vice versa. Zero point options are not as available to international borrowers.

Taxes

• Property Tax - Property owners of Hawaii real estate are required to pay taxes based on the county assessed value. Visit our page for Hawaii Real Property Tax Rates.
• FIRPTA - Non-US citizens are subject to FIRPTA, or Foreign Investment in Real Property Tax Act. It requires that 10% of the sales price is held to ensure US Federal taxes are paid on the gain. Any overpayment is returned to the tax payer, or seller.
• HARPTA - Non-Hawaii residents are subject to HARPTA, or Hawaii Real Property Tax Act. It is the Hawaii version of FIRPTA and requires that 5% of the sales price be held to ensure Hawaiian State tax is paid on the gain. Any overpayment is returned to the tax payer, or seller. If there will be a loss realized upon the sale, escrow can submit form N-288B to waive the collection of HARPTA.
• TIN - Foreign investors will need a Tax Identification Number (TIN) in the US if they plan on renting their Hawaii property. If the property will be used as a second home and never rented out, they may not need the TIN right away, but should plan on attaining it prior to the sale of the property. Just to be safe, Canadians should plan on getting the TIN prior to the close of escrow on the Hawaii real estate purchase.

Other Costs

• Strata Fees - Also known as AOAO (Association of Apartment Owners) fees, or maintenance fees in the United States. The AOAO fee generally is paid on a monthly basis and typically covers: water, trash, maintenance of the common areas, insurance on the exterior of the building and sometimes basic cable and electric.
• HOA Fees - With single-family homes you will most likely find HOA (Home Owners Association) fees in the event the property is located within a gated subdivision, resort neighborhood, or water is provided from a private well owned by the HOA.
• Utilities - This can include the following: electric, gas, water, phone, cable and internet.
• Flood Insurance - If the property is located within a flood zone, you will need to contact FEMA (Federal Emergency Management Agency) to inquire about starting a flood insurance policy. There are third-party flood insurance companies, but the annual cost for the same coverage will be much higher.
• Home Owners Insurance - There is also the need for a home owners policy which covers the interior of the unit. This policy should cover the following: appliances, furnishings, flooring, interior walls, electric, plumbing, as well as all personal property.