Buying a home is a significant milestone, especially in the beautiful Hawaii. Living here is expensive so it's crucial to know your options for low down payment. It's one of the biggest barriers to homeownership and is often misunderstood. However, there are several low down payment options available that can make the process smoother and less stressful. Let’s explore these options to help you take one step closer to your  home in Hawaii.

First, let’s understand what a down payment is. A down payment is the amount of money you pay upfront when purchasing a home. It’s usually expressed as a percentage of the home’s price. Traditionally, many people think they need to save up a hefty sum—often 20% of the home’s price—to buy a house. While this is still a common figure, it’s not the only option available. In fact, there are excellent low down payment options available specifically tailored for those looking to buy in Hawaii.

There are many government programs out there that sound good but in reality don't apply to the majority of homebuyers.  From over 10 years of doing loans in Hawaii, the most popular low down payment loan is just a conventional, regular loan.  While many conventional loans require at least 5% down, there are programs that allow for as little as 3% down. These loans often come with private mortgage insurance (PMI), which protects the lender in case of default.   This is a monthly cost on top of taxes and insurance.  If you can manage the PMI costs and have a decent credit score, a conventional loan with a low down payment can be an excellent pathway to homeownership.

One of the most popular low down payment options on the MAINLAND are FHA loans.  Before I go into that let's explain what this program is.  FHA, or Federal Housing Administration, loans are designed for first-time homebuyers or those with lower credit scores. With an FHA loan, you can put down as little as 3.5% of the purchase price. This means that if you find a home for $500,000, you would only need to come up with $17,500 for the down payment. However, most first time homebuyers buy condos or town homes.  To use a FHA loan on a condo or town home, that property must be FHA approved.  I'm going to spare you the details but there just aren't many FHA approved condos in Hawaii.  It's a sad reality and the #1 reason why people don't utilize this otherwise great program.  

Next, let’s talk about VA loans. If you are a veteran or active-duty military member, you may qualify for a VA loan. One of the best features of a VA loan is that it requires no down payment at all. That’s right—zero! This can be an incredible opportunity for those who have served our country and want to establish their home in Hawaii. Additionally, VA loans typically come with no mortgage insurance costs compared to other loan types, making monthly payments more manageable.  However, you must qualify by being a veteran or an active duty service member.  If you can, this is my favorite loan type to do because it has flexible requirements and low rates.

USDA loans are another great option for those looking to buy in more rural areas of Hawaii. These loans are backed by the United States Department of Agriculture and are designed to promote homeownership in designated rural areas. With a USDA loan, you may be able to buy a home with no down payment required, making it an attractive choice for eligible buyers. However, keep in mind that there are specific qualifications and property location requirements to consider, so it’s essential to understand the details.  The devil is in the details and many inquire about this program but few qualify.  The main reason is that the debt to income requirements are very low and there are income limits.  The second reason is that many do not want to live in the areas that qualify.  

In addition to these loan options, Hawaii has several state and local programs designed to assist first-time homebuyers. These programs often provide down payment assistance or grants to help ease the financial burden of purchasing a home. One example includes the City and County of Honolulu down payment assistance loan.  IF you can qualify, it is a great deal.  Here is the link: https://www8.honolulu.gov/dcs/wp-content/uploads/sites/24/2023/05/2022_DPL_Prog._Brochure_Rev_6.15.22.pdf

While the options might seem overwhelming, the key to navigating the home-buying process is to get informed and seek guidance. As a mortgage loan officer with extensive knowledge about the Hawaii market, I encourage you to reach out to discuss your specific situation. Each buyer's journey is unique, and understanding your financial picture, credit score, and home-buying goals is crucial in determining the best down payment option for you.  Just because your friend's cousin's aunty got a certain type of loan, it does not mean it's right for you.  Reach out and let's get a customized plan laid out for you.