Feb. 23, 2012

Canadian Financial Information for Purchasing Real Estate in Hawaii

Anyone from Canada interested in purchasing a home in Hawaii in any of the major areas such as Oahu, Lanai, Molokai, Maui, or the Big Island should be aware of certain tips that will help with their real estate purchase and any financing that is also necessary.

There is plenty of information that potential home buyers must be aware of when considering purchasing a house in Hawaii, especially if they live off island. For instance, a Tax Identification Number may be necessary for those that plan on renting out their home when they are off the island.

The common loans in the United States have mortgages that are paid off over 30 years. Many Canadians have felt comfortable using a Hybrid Adjustable Rate Mortgage because these have a fixed rate for 5 to 10 years. Also, many loans in the U.S. do not have a prepayment penalty, and any that do are usually no longer than 12 to 24 months.

Down payments can vary depending on the type of home the person is looking to purchase and obviously its cost. An example of single family residences and conforming condos down payments are 20 percent down on a loan of $625,500, and 30 percent down on a loan amount of $850,000. All properties that require a loan of $1 million will require a 35 percent down payment and anything $5 million and over that goes up to 40 to 50 percent.

Any mortgage that is taken out in the United States will need income verification. This will require full income documentation for at least two years. The documents needed include T-1’s, T-4’s, corporation and business returns, and current pay stubs.

Anyone that is self-employed, retired, or has strong assets might consider asset depletion to help with verification on a mortgage. This will require documentation of all liquid assets with at least two to three months’ worth of bank, stock, retirement, and mutual fund statements.  Sometimes there are situations that arise where all of retirement accounts cannot be used.

There are closing costs that Canadian buyers need to be aware of because they are different in the United States than other countries. Title and escrow companies can have a number of charges that can include:  notary, conveyance tax, deed, association dues, inspections, escrow fee, property taxes, transfer fee, recording fee, maintenance fee, and title policy. The lender will also have fees that are applicable such as underwriting, loan documents, administration, appraisal, credit report, processing, and funding. These should all be disclosed to the borrower. 

There will also be points that are fees relating to the mortgage rate. One point equals one percent of the loan amount -the higher the points the lower the rate, and the lower the points the higher the rate. Canadian buyers will have a hard time having zero points available.

Now, here is what should be known about taxes.  Any property owner in Hawaii is required to pay taxes based on the county assessed value.  Someone from Canada purchasing a home in Hawaii would be subject to FIRPTA or Foreign Investment in Real Property Tax Act.  This means that 10 percent of the sales tax is required to be held to ensure that U.S. Federal taxes are paid.  Any overpayment out of the 10 percent will be returned.

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