Getting a Mortgage on a Vacation Condo in Hawaii

Getting a Mortgage on a Vacation Condo in Hawaii

Now that you've snapped out of your daydreams of swaying palm trees and the enveloping comfort of warm tropical air, you may recall that in a previous blog post I covered the things we need to know when buying a second home in Hawaii, and using a jumbo mortgage in the purchase transaction.  But what if, instead, you are looking specifically to buy a condominium to use as a second home?  Are there any tips, tricks and general good advice when it comes to getting a home loan to purchase one of these?  The answer is a resounding "Yes!," and if you can follow some of the ones outlined below, you may just set yourself up for saving money, assuring a smooth process and securing terms that ensure that you can enjoy your vacation property for many years to come.  First, let's cover the essentials of any second home:

What Is a Second Home?

While any vacation residence may seem to fit the bill, true second homes have specific, defining characteristics in the eyes of a mortgage lender.  For us, a second home must meet these three guidelines:

1. Must be a reasonable distance from your primary residence.  Since we're going to assume you live in the contiguous 48 or Alaska, this is likely the easiest hurdle to clear.
2. Must be suitable for your year-round occupancy.  This goes hand-in-hand with the point to follow, but think of it this way.  Your vacation home is yours.  That means if you decide to show up for an impromptu weekend or an entire month of the winter, you don't have to move anybody out.  The home is always there for you when you want to occupy it for any amount of time.
3. You must not enter into any rental agreements.  Sure, AirBnB and VRBO have muddied the waters considerably but if you're going to purchase a home, the true test is your intent.  If you plan to make money off of the property, then you technically have an investment property and not a second home and your lender may approve or deny your loan application on that basis.  And let's be very serious.  If you deceive your lender into approving a second home mortgage, presumably to take advantage of a lower rate and smaller down payment requirement, and then begin renting out the property, you could be in serious trouble on a Federal level.  Just don't do it.

Getting Your Condo to Conform

Fortunately, all five of Hawaii's metropolitan statistical areas (MSAs); Hawaii, Honolulu, Kalawao, Kauai and Maui all have a 2019 conforming loan limit of $726,525 and this allows buyers some additional room to obtain a conforming loan.  What is a conforming loan and why does that matter here?  Well, conforming loans provide a great deal of uniformity and efficiency in underwriting and they also tend to provide the buyer with rates and terms that most would consider to be very competitive.  In essence, a conforming loan option tends to narrow the scope of the loan selection and attainment process in a helpful way to the consumer. 

When it comes to condos, working to get a mortgage for a second home with a 25% down payment, if possible, allows the buyer to greatly streamline the efficiency of the condo approval process through what is known as a "limited review."  Up until recently, second home condominium projects in Hawaii often ran into issues such as too high a concentration of owners who do not occupy as a primary home --- which makes sense in Hawaii.  With this ratio higher than lenders preferred, many condo projects were deemed "non-warrantable" by Fannie Mae and Freddie Mac and thus, buyers needed to find loan options that often had less desirable terms.  But now, a savvy, vacation home condo buyer with a 25% down payment can stack the deck in her favor, use the guidelines to her benefit, exploit the higher loan limits and perhaps just make that second home scenario work with an excellent conforming loan option.

Also worth noting is that the new conforming condo guidelines are more lenient with other "hotel-like" characteristics that some condo projects in Hawaii tend to exhibit.  Today, and with a limited review, condo projects just need to meet the criteria of a handful of reasonable questions pertaining to the characteristics, amenities and requirements set forth by the homeowner's association (HOA).  And in general, so long as the subject property's project functions more like a condominium for owners and less like a hotel for visitors, the process for approval is less onerous than in the past.

Hanging More Than $726,525?

But what happens if you need a loan greater than the conforming limit?  In that case, a jumbo mortgage is required and we offer those as well.  A buyer can assume that a jumbo lender will have its own questionnaire and requirements to determine approvability of the condo project.  One can expect that the process will involve more scrutiny of the owner occupancy ratio and other financial and management attributes of the project.  But by no means is it impossible to get a jumbo loan on a Hawaii condo, and we'll go up to a loan amount of $3,000,000 with as little as 20% down ($3,750,000 purchase price). For now, anyway, your dream of that luxury condo overlooking Diamond Head remains intact...

The Pineapple Express

Many who consider purchasing a second home in Hawaii are led to believe that they must use a lender on the islands.  Not 100% true.  While there are many good options for financing there, you are not exclusively limited to working with a lender in Hawaii.  In fact, some of our vacation home borrowers prefer to work with us because of our similar work styles, California-competitive pricing as well as the immediacy of the time zone, etc.  But in any case, we have an understanding and respect of the culture and customs on the island and are ready to provide a "best of both worlds" experience to those in the vacation condo market.  Get in touch and let's talk story! 

Mahalo, 

Robert J. Spinosa
Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.

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