Your Guide to Closing Costs in Hawaii

Endless palm trees, pristine beaches and some of the world’s best sunsets — life is, literally, an island paradise in Hawaii. And while there are several affordable cities in Hawaii, homebuyers beware: Buying a home in the Aloha State comes at a hefty premium, starting with closing costs, which are some of the highest in the country.

Closing costs represent all the fees homebuyers must pay on closing day before they receive the keys to their new home and generally amount to 2 percent to 5 percent of the home’s purchase price. It takes a village to help you buy property — you’ll need to pay your lender for setting up your mortgage, your appraiser and inspector for scoping out your new home, and your home insurance provider, as prime examples. Instead of paying each service provider individually, you’ll pay for these fees in a lump sum. 

If you’re wondering how much closing costs can run in Hawaii, here’s a closer look at what you can expect to pay and how to potentially save on these costs. 

How Much Are Closing Costs in Hawaii?

With home prices soaring, homebuyers will need to have deep pockets to come up with the cash for a down payment and closing costs in Hawaii. 

On average, closing costs in Hawaii come to $4,154 for a home priced at $549,496, according to a 2021 report by ClosingCorp, which provides research on the U.S. real estate industry. That figure makes up 0.76 percent of the home’s price tag. In comparison, the national average is $6,087. Hawaii ranked seventh out of all 50 states, making it one of the costliest states to close on a home.

But ClosingCorp didn’t factor in certain expenses, such as mortgage loan origination fees and private mortgage insurance, which could add thousands to your closing costs bill. It also didn’t consider state-specific expenses. In Hawaii, that could include a flood certification risk, extra insurance policies to protect against earthquakes and windstorms, and conducting a land survey.

Where you’re moving to in Hawaii will also dictate how much you’ll spend on closing costs. ClosingCorp’s estimate was based on an average home price of $549,496, but home prices exceed $1 million in Kauai and Maui, for example. In Kauai, the median sales price for a single-family home as of July 2021 was $1.32 million, while in Maui, single-family homes hit $1.05 million, according to Hawaii Realtors.

If homebuyers are aiming to pay up to 5 percent on home prices ranging from an average of $550,000 to as high as $1.32 million, closing costs could be somewhere between $27,500 and $66,000.

Ultimately, how much you pay will depend on the price of your home and the complexity of the home sale.

What’s Typically Included in Hawaii’s Closing Costs?

Homebuyers in Hawaii may be wondering why closing costs can run so high here. 

Let’s look at some of the common closing costs you’ll likely incur in Hawaii, including the state-specific details you’ll need to watch out for:

Loan Origination Fees

Unless you’re buying your new home with cold hard cash, the first stop you’ll make in the homebuying process is to your lender. But getting a mortgage doesn’t come for free — your mortgage broker will charge loan origination fees for all of the administrative work involved from setting up your home loan application to processing your funding at closing.

You should estimate loan origination fees to run about 0.5 percent to 1 percent of the loan amount. 

Credit Report Fee

When you apply for any type of credit, your lender will need to do their due diligence to make sure you’re a responsible borrower. During the home loan application process, your lender will run a thorough credit check on you, which includes requesting your credit report from the various credit bureaus to get a detailed look at how you’ve managed your debts.

Your lender will bill you for the cost of pulling your credit reports. Count on doubling this expense if there’s more than one person on the loan application.

Escrow Fees

You’ll need to recruit a title company or escrow agent to guide you through the entire closing process. The title company acts as a neutral third party between you and the seller or homebuilder. Buyers and sellers typically split escrow fees.

The title company will hold your funds, such as your earnest money deposit and down payment, in a third-party escrow account until closing. The title company will also coordinate other pivotal parts of the closing process, including ordering a title search, working with an attorney for drafting purchase contracts and certifying the transfer of deeds, and working with lenders on both sides. 

Attorney Fees

While it isn’t mandatory, you or your title company may enlist a real estate attorney to help with legal documents, especially property transfer documents. 

An attorney can also help draft your purchase agreement, certify deeds and review your home insurance and title insurance policies.

The cost for hiring a real estate attorney in Hawaii will vary, depending on where you are in the state, what you need your lawyer to do and how complicated your home sale is. Some real estate lawyers will bill you by the hour while others will charge a flat fee for looking after your home purchase.

Title Search and Title Insurance

In Hawaii, it’s common for your title and escrow company to provide a title search on the property you’re preparing to buy. A title search is an in-depth look at the property’s title history to verify that your seller has the right to transfer ownership to you. 

After the title search is complete, you’ll need to cover your bases with title insurance for both you and your lender. Title insurance protects both parties in case there are claims on your property. Your title company will help you with purchasing adequate title insurance according to your lender’s requirements. It’s a one-time expense, so the insurance applies for as long as you’re the homeowner of the property you’re about to purchase.

Typically, the seller pays 60% and the buyer pays 40% for the “owner’s” title insurance policy. But this guideline isn’t set in stone — if you’re negotiating with the seller, you could divvy up these expenses in another way that suits both parties.

Real Estate Transfer Tax

In Hawaii, the seller of a home is required to pay the real estate transfer tax, which is also called a conveyance tax. It’s taken right out of the profit made from the house’s sale at closing.

The rate the seller pays will depend on several factors, namely the home’s sales price and whether the buyer qualifies for a homeowner’s exemption. A homeowner’s exemption means the property would be used as the buyer’s primary residence, which is important to note in a state like Hawaii where people may buy holiday homes or rental properties. 

Homes priced at $600,000 to $1 million come with a conveyance tax rate of 0.15 percent per $100, but the rate lowers to 0.10 percent per $100 if the buyer qualifies for the homeowner’s exemption. 

Property Taxes

Hawaii has one of the country’s lowest property tax rates at roughly 0.26 percent. The median annual property tax payment is $1,324 for a home valued at $517,600. Homebuyers will pay for prorated property taxes at closing, and then biannually moving forward.

Homeowner’s Insurance

Lenders typically require you to have a homeowner’s insurance policy paid for and in effect at closing. This insurance will cover you in case something happens to your home, such as fire, vandalism, or theft. 

Do your research to ensure you will have adequate coverage, depending on where you live in the state. You may need to add coverage for flooding, earthquakes and storm damage. Your lender may also require you to obtain a flood certification to categorize your home’s flood risk.

Appraisal and Home Inspection

You’ll also need to clear an appraisal and home inspection before your lender decides it’s safe to transfer your home loan.

During the homebuying process, your lender will send a third-party appraiser to your new home to make sure it’s priced at the proper value. Your lender needs to know they can sell the property and recoup their costs if you can’t keep up with your mortgage and default on your loan.

An appraiser will scope out the home, its key features and compare the property to comparable homes in the neighborhood to determine its fair market value.

A home inspection provides a different function. In this case, an inspector will conduct a thorough walkthrough of the property to confirm everything is in good running order from the foundation to the roof. The home inspector will point out issues that already exist or may surface in the coming years. You can use this information to negotiate with your seller or ask them to make repairs before finalizing the deal.

The homebuyer pays for both the appraisal and home inspection. 

Private Mortgage Insurance

If you aren’t providing a 20 percent down payment, your lender will expect you to buy private mortgage insurance, or PMI. It allows borrowers to qualify for a conventional loan even if they put down only 5 to 19.99 percent of their mortgage. 

While you’re the one paying for the insurance, the coverage is for your lender; because you haven’t put down 20 percent, PMI protects your lender in case of loan default.

This cost isn’t included in the ClosingCorp tally of closing costs expenses, but PMI typically ranges from 0.25 percent to as high as 2.25 percent of your outstanding loan balance, depending on the size of your down payment and your credit score.

How Can I Lower My Closing Costs in Hawaii?

Is the sticker shock setting in? If you’re worried about how you’ll come up with the cash to close on your dream home, here are some key strategies you can use to save on this expense. 

Closing Cost Assistance

Take advantage of Hawaii’s homeownership assistance programs to put a significant dent in your closing costs.

For example, the Hawaii HomeOwnership Center Affiliate (HHOC) runs a down payment and closing cost assistance program, providing a 15-year deferred loan with zero interest and no monthly payments. You can use the funds toward your down payment and closing costs. 

Get Your Finances in Shape

Taking control of your finances is another way to see a dramatic decrease in how much you’ll spend on closing costs.

The interest rate you secure is a critical moment in the homebuying process. If you have a great credit score when you apply for a home loan, you can secure a lower interest rate, which will save you thousands of dollars over the lifetime of your mortgage.

Check your credit score ahead of time to see if it needs some work or if it’s in good standing. Then focus on paying down your debts to keep your debt-to-income ratio low, don’t skip any payments on your existing loans and don’t apply for more credit before you make your case to lenders. 

Save as much as you can for your down payment, too. The closer you get to the 20 percent down payment threshold, the less you’ll have to pay in PMI. Even if you only have a 15 percent down payment, once you hit the 20 percent equity mark as a homeowner, you’re off the hook for PMI.

Comparison Shop

Another great tactic is to choose your service providers wisely, whether you’re shopping for a title company, an inspector or a surveyor. Read reviews from previous customers, ensure they are appropriately accredited and then look at price points so you know you’re getting the best deal.

You can also shop around for the best interest rate on your mortgage loan.

Seller Concessions

There is always wiggle room when you’re dealing with your seller — unless you’re in a seller’s market!

It’s common to work with your seller to come to a compromise on who pays for what. If your home purchase is a fixer-upper, for example, you can ask the seller to cover portions of your closing costs so you can pay for repairs. If you’re buying a new home but need to pay for upgrades, you may be able to work out a deal with your builder to pay your closing costs.

Negotiate Fees

Your Closing Disclosure form should outline every service and fee you’ll be charged for on closing day. Read through this itemized list line by line so you understand and agree to the charges you’re incurring.

You can also negotiate certain fees — this time with your lender. If you’re a long-time, loyal customer with multiple loan products you’re managing responsibly, you could ask your lender to remove some loan origination fees. The most obvious charges you can try to eliminate are fees that are often labeled as “junk fees,” such as rate lock fees, loan processing fees and broker rebates.

No-Closing-Cost Mortgages

Some homebuyers can opt into a “no-closing-cost” mortgage as a strategy to keep this expense at a minimum. With no-closing-cost mortgages, your lender agrees to pay for part or all of your closing costs, but you in turn pay a higher interest rate. 

In the long run, this could cost you more money because of the bump in your interest rate, but for some homeowners, it may be their best choice.

Adding Closing Costs to Your Home Financing

If you don’t have the upfront cash to cover your closing cost expenses, you may be able to roll this into your home loan. This means you’re off the hook for paying for these expenses on closing day, but you’ll make up for it via monthly mortgage payments that will be a bit higher. Ultimately, you’re paying interest on the closing costs tacked onto your first mortgage. 

Check with your lender to see if this option is available. Keep in mind, not all closing costs can be included because some, such as homeowner’s insurance, must be paid upfront.