Hawaii First-Time Home Buyer Programs and Grants of 2022

Key takeaways:

• An affordable resale program allows you to get into a home at a below market purchase price.
• Down payment assistance helps to lower upfront costs, including the down payment and closing costs.
• Federal programs offer additional options for Hawaii first-time home buyers.

Buying your first home in Hawaii can feel like an overwhelming task. You have not only the typical first-time home buyer challenges such as saving for a down payment, but also the hurdle of rising home prices. The median price for a single-family home in the state recently reached $835,000.

Special first-time home buyer programs allow you to purchase an affordable home. These programs are designed differently from first-time home buyer programs in other states, which typically offer low-interest mortgages or flexible terms. Hawaii programs decrease the purchase price to make home buying more affordable for low- and moderate-income households. Understanding the available programs and where to look for help are the first steps toward owning your first home in Hawaii.

First time home buyer Hawaii: The HHFDC Affordable Resale Program

Qualified Hawaii residents have an opportunity to purchase a new home from the HHFDC at prices lower than the market rate. For example, these prices may range from $250,000 to $500,000 depending on the home’s details and size. Acceptance to the program enters you into a lottery. If selected, you have an opportunity of purchasing a new home. Eligibility criteria include the following:

• You must be a U.S. citizen or resident alien.
• You must be at least 18 years of age.
• You must be a legal resident of Hawaii.
• The unit purchased must be owner-occupied.
• You cannot currently own any other properties.

The HHFDC does have a “buyback program” and requires that you live in the home for at least 10 years. If you decide to sell the property sooner, the HHFDC can purchase back the property. There are also restrictions around refinancing the home within the first 10 years. If you are wondering about the average age to buy a house, we suggest taking a look at this article. 

The HHFDC program also requires that you pay back at least part of any equity that you gain. These funds are used to help other first-time home buyers purchase below-market-price homes. Applications and more details can be found on the HHFDC website.

Mortgage Credit Certificate

The HHFDC offers a mortgage credit certificate (MCC) program to first-time home buyers. The MCC program enables homeowners to receive a federal tax credit for up to 20% of mortgage interest each year. The tax credit remains in place for the life of the loan, allowing homeowners to save potentially thousands of dollars each year. The program has a few eligibility requirements, including the following:

• The property must be your primary residence. For example, if you decide to rent the home in the future, you aren’t eligible for the MCC tax credit.
• The mortgage must be a new loan in order to qualify for the MCC program.
• Income and tax limits apply, depending on the county in which you live.

Applying for the loan requires you to work with an approved lender. A list of qualified lenders can be found through the HHFDC. 

HHOC Mortgage Down Payment Assistance Loan Program

The Hawaii Homeownership Center offers first-time home buyers a down payment assistance loan. The program’s purpose is to help borrowers afford the costs associated with purchasing a first home, including down payment and closing costs.

Closing cost expenses range from 2% to 5% of the mortgage amount. For example, if you purchase a home and finance $400,000, closing costs may range from $8,000 to $20,000. These costs include a variety of fees, including mortgage loan origination fees, the appraisal, property tax, and more.

The down payment assistance program allows you to make a 5% down payment on your first home. The maximum loan amount available is $75,000, with a loan term of 15 years. The interest rate on loan is as much as 2% higher than your first mortgage. Eligibility requirements include the following:

• You must be a first-time home buyer who hasn’t owned a home in the past three years.
• The property must be your primary residence.
• You must meet income requirements, which vary based on county.
• Borrowers are required to complete a home buyer education class (9 hours of education).
• You must complete one home-buying financial counseling session.

County-specific programs

There are specific first-time home buyer programs located in Hawaii by county. Depending on the county/island where you reside, you may qualify for additional programs and down payment assistance. Here are a few of the available programs:

Maui County first-time home buyer down payment program. This program offers loans up to $30,000 to help cover your down payment. Funds are awarded to qualifying applicants through a lottery system. To apply, you must have a household income that is less than 140% of the county’s median annual income, be a first-time home buyer, and have assets that do not exceed $75,000. The program is available through the Maui County Housing Division.

Kauai home buyer loan program. This program is available to residents in Kauai and offers low-cost mortgages to first-time home buyers. The maximum loan amount is $450,000. Applications can be found through the County of Kauai.

City and county of Honolulu down payment assistance. This program is available through Honolulu’s Department of Community Service. It offers a 0% interest rate and no fee payment loan to low- and moderate-income home buyers who are residents of Oahu. The maximum amount is $40,000, and the loans are awarded on a first come, first served policy. You can learn more about the program here.

Understanding private mortgage insurance

First-time home buyer mortgages are attractive due to low down payment requirements, but any time you put less than 20% down on a home, you might need to pay private mortgage insurance (PMI). But what is private mortgage insurance?

PMI is an insurance premium that you pay to protect the lender from financial loss. Putting less than 20% down on a home makes the loan a more significant risk to the lender, and the lender wants to make sure the investment is protected. The cost of PMI varies, anywhere from .5% to 1% of the mortgage amount. This can add up to a few hundred dollars a month, depending on your total mortgage amount.

Once you have at least 20% equity in your home, some lenders will allow you to drop PMI from the mortgage.

Federal first-time home buyers

Many of Hawaii’s first-time home buyer programs use a lottery system. There are other options if you don’t qualify or have trouble getting a loan or down payment assistance. Federal mortgages for first-time home buyers offer low down payments, flexible lending criteria, and other perks that are attractive to first-time home buyers. Let’s take a look at some of the more popular programs for first-time home buyers.

FHA loans. This loan program is attractive to first-time home buyers due to a low down payment requirement and low credit score requirements. FHA loans accept a down payment as low as 3.5%. Additionally, credit score requirements are as low as 580.

An FHA loan requires an upfront fee of 1.75% for mortgage insurance. A monthly premium of .45% to 1.05% of the loan annually is also required. This amount will vary based on the specific details of your application. Note that the upfront payment and annual fees can be rolled into your mortgage payment to make it more affordable.

VA loans. If you are an active member of the military, a veteran, or a qualifying spouse, you may qualify for a VA loan. These loans are attractive to first-time home buyers due to 100% financing and no down payment required. PMI is not required with the loan, which can save you hundreds of dollars each month.

USDA loans. USDA loans are available to qualified borrowers who purchase a property within the boundaries of USDA-eligible properties. This loan is attractive to first-time home buyers due to 100% financing. With no down payment required, you don’t need to deplete your savings account to purchase a home. A credit score of at least 640 is required for a USDA loan.

This program does not require traditional PMI but does require an “upfront guarantee” and annual fee. The cost of the upfront guarantee fee is 1% of the mortgage amount. The annual fee is .35% of the loan amount. Both fees can be rolled into your monthly mortgage payment to make it more affordable.

Buying your first home with confidence  

Owning a home in Hawaii is a large accomplishment due to the high cost of living and rising home prices. However, once you tap into local resources, meet qualifying criteria, and take advantage of down payment assistance, you can put yourself on the path to homeownership faster. As a result, you will secure a new home and protect yourself from rising cost-of-living expenses.