Shopping for a loan can be the most confusing part of buying a home. When it comes to financing your home purchase, understanding a few basics can keep you out of a bad loan and prepare you for the decisions you will need to make as you go through the process of obtaining loan approval.

One of the first questions you will need to address when you start loan shopping (ideally, before you are ready to make an offer on a home) is:

Bank versus Broker? The answer, in most cases: shop and compare.

Working with a Bank

Let’s start with the negatives. What you may have heard about banks, when it comes to home loans, is that “they are more conservative,” that “they charge a little more because of their higher overhead,” or that “they are too bureaucratic.” In some cases, these things may be true.

But, there are also advantages to working with an established, reputable bank, especially if you already have a relationship established with them and the loan package they are offering is right for your situation. If you have good credit, a bank may be able to save you money on your loan by offering better terms than a broker. In Hawaii, many of our local banks also have well-deserved reputations as institutions with longevity, deep community roots and a history of sound fiscal policy.

Working with a Mortgage Broker

The most common negative you might hear about mortgage brokers, who, in most cases, are acting as a middleman between you and a wholesale lender, is that some are “fly-by-night” operations looking to make money off of unsophisticated buyers by charging hidden fees. As with any industry, there are some brokers who engage in predatory tactics. But, there are also many ethical, highly-trained independent brokers who are active in their local communities and who work hard to put the pieces of the loan process together for their clients. Depending on your credit situation and the type of property you are purchasing, a broker may be able to find a better rate for you than your bank can offer.

When it Comes to the Loan, Compare Apples to Apples

Banks can only offer their own loan products. Mortgage brokers can comparison shop for you. It is important to compare the products they offer in an apples-to-apples comparison (same loan term, same loan type). In the end, what really matters is that you are working with an honest, dedicated, capable team of people who will work hard to see you through to your closing. Ask questions, get referrals and be sure you are working with someone who has closed loans on the type of property for which you are shopping. Your Realtor® is a resource who can give you suggestions for local lenders to contact.

Other Options

• Developer Financing: If you are considering purchasing from a builder, financing may be available from the developer. In this case, work with your agent to carefully analyze the terms and conditions of the loan to be certain you are getting the best possible deal.
• Credit Unions: If you are a member of a credit union that offers home mortgages, add your credit union to your list of possible options. Again, shop and compare, making sure you are comparing “apples to apples” loan products.
• Internet Lenders: There are many sites that advertise nationally offering home mortgage products. For Hawaii buyers, we addressed the question of using a local lender versus using a mainland-based lender in an earlier post. The underwriters involved in approving these loans are generally not familiar with the Hawaii market. If you opt to use an internet lender, you may want to have a “Plan B” ready just in case complications arise.

No matter what is happening in the real estate market, there are some parts of the buying and selling process that remain constant.

For buyers, there are a few steps to take before starting your home search that may save you precious time and help you avoid unnecessary frustration and delays once you’ve found the home you want to buy.

First Things First: Check Your Credit Report

No doubt you’ve seen catchy TV ads telling you how to get a “free” credit report–and recommending you do so in order to avoid “living in the basement with your girl’s mom and dad!” But, there is only one website that is authorized by the Fair Credit Reporting Act to provide you with the free report to which you are entitled under the law. That site is annualcreditreport.com.

To obtain your credit report from annualcreditreport.com, you will need to provide your name, address, Social Security number and date of birth. You may have to provide your previous address if you have recently moved.

When you visit annualcreditreport.com, you can obtain your report from all three credit reporting agencies (Equifax, Experian, TransUnion) at the same time in order to compare them, or you can stagger your requests. You can request only one copy from each agency in a 12-month period, except for in a few special circumstances.

Once you obtain your credit report, look for any inaccuracies and incomplete information. If you do find errors in your report, visit the Federal Trade Commission’s How to Correct Credit Report Errors page for step-by-step instructions for getting those errors corrected.

Credit Report Versus Credit Score

When you apply for a loan to finance the purchase of a home, your lender will pull your credit score. Your credit score is a major factor in determining the interest rate you will pay for your loan.

If you want to know your credit score before you are ready to apply for a loan, you have a few options.

When you go to annualcreditreport.com, the credit reporting agencies will offer you the option of purchasing your credit score. You can also enroll in a credit monitoring program for a monthly fee, or you can use myfico.com, where you can obtain a score for free, but with a caveat. Here’s the small print you need to read:

“When you order your free FICO Score here, you will begin your 10-day trial membership in Score Watch®. If you don’t cancel your membership within the 10-day trial period, you will be billed $12.95 for each month that you continue your membership. You may cancel your trial membership anytime within the trial period without charge.”

Your credit score is based on five factors, each weighted as noted here:

• Payment History (35%): Major events, like bankruptcy, as well as late payments will impact this category negatively.
• Total Amounts Owed  (30%):  Having a high debt-to-credit ratio will impact negatively on your credit sore. This is why closing old accounts or account with a zero balance may not be in your best interest.
• Length of Credit History (15%)
• New Credit  (10%): Opening several new credit accounts in a short period of time may reflect negatively on your credit score.
• Type of Credit  (10%): What kind of accounts, how many of each and how many accounts you have will impact your score.

Credit Repair

For more information on repairing your credit and avoiding scams, please visit the Federal Trade Commission’s Credit Repair: How to Help Yourself page for more information

More Resources

For buyers ready to enter the market, understanding how lenders use your credit score is one of the first steps in the process of seeking a loan. If you have more questions about your credit report, credit score, or credit repair, the Credit and Loans section of the Federal Trade Commission’s website is a good resource for in-depth research.  Or, you can speak with a lender you trust or your Realtor® for additional resources. Your home-buying process will proceed much more smoothly when, as a buyer, you take care of first things first.

On certain evenings from May to July, for a few hours after sunset on nights when the air is warm and still, Hawaii residents will often find termites flying around outdoor lights and sometimes even indoor lights, televisions and computer screens.

The “alates” or “swarmers” are looking for mates on nights like these.  Pairs that survive the geckos, toads and ants waiting in the wings to eat them will likely become the founders of new colonies.

According to the University of Hawaii’s CTAHR Cooperative Extension Service, the two most common types of termites in Hawaii are the West Indian drywood termite and the Formosan subterranean termite.

These termites cause over $100 million in damage to structures in Hawaii each year, so homeowners are advised to be vigilant about treating infestations as they are discovered.

View CTAHR’s Hawaii Termites – An Identification Guide (PDF)

Buyers are advised to have a professional termite inspection during the inspection period agreed upon in the “Termite Provisions” section of the Purchase Contract, which states:

The obligation of the Buyer to purchase the Property is contingent upon the delivery to Buyer within the time specified…an inspection report stating there is no visible evidence of active (i.e., live) termite infestation, or the treatment of such improvements by no later than five (5) days prior to the Scheduled Closing Date.

Sellers are required to disclose “any prior and/or current infestation and damage of which the Seller is aware.”

For the rest of us, turning off as many lights as possible between 7:00 and 9:00 pm is the best short-term solution.  And contacting a professional for an inspection if you see tell-tale droppings or mud tunnels is recommended in order to protect the value of your real estate investment.

MORE RESOURCES:

The University of Hawaii Termite Project has an interesting collection of photos and several helpful tips for homeowners and buyers.  Here are links to a few pages that may be especially helpful:

• Inspecting the property of a previously-occupied home
• Understanding termite-resistant building material options for new homes
• Homeowners Guide: Prevention and Control

Cynthia Hoskins, R(S) is Clark Realty Corporation’s Social Media Liaison
Follow us on Twitter | Connect with us on Facebook

Centrally located between Kailua-Kona and Waimea in upcountry West Hawaii (just over 2000 ft above sea level), Puu Lani Ranch is known for its mild climate and expansive views.

View MLS 234748 Property Detail

Buyers searching for a horse property will appreciate that residents of Puu Lani Ranch have access to an established equestrian facility with arenas and paddocks in addition to the community’s tennis and clubhouse amenities.

An added bonus: this subdivision is located directly across the road from the Big Island Country Club, which is under new ownership and currently undergoing renovations.  Here, golfers can enjoy beautiful Kohala coast views and a unique course with Hawaii’s only “island” green.

View all Puu Lani Ranch residential and land listings.

For more information about this build-ready parcel, please contact the listing agents, Leslie M. Agorastos, R, and Alexander G Budge, R of our Waimea office.

Cynthia Hoskins, R(S) is Clark Realty Corporation’s Social Media Liaison
Follow us on Twitter | Connect with us on Facebook

MLS 231936 - Seller financing available. 20 acres and an unfinished cabin with Waiohinu hillside & vast Pacific ocean views.

The Ka’u district of Hawaii’s Big Island is known for its vast coastline, black and green sand beaches and the Kau Desert in Volcanoes National Park.

Due in part to tighter lending restrictions on lava zone 1 and 2 properties and the increase in volcanic emissions (Vog) as a result of the March 2008 Halemaumau Crater eruption, the Kau district has been one of the harder hit areas of the Big Island during the recent economic downturn.

But, the rugged appeal of this area, combined with the fact that there are affordable deals to be found in the current market, means that adventurous buyers are finding opportunities that continue to draw attention to the southern-most part of the island.

Inventory and Recent Sales

Active Listings: There are currently 187 active listings in the Kau district (including residential listings and condos at Colony One at Sea Mountain as well as a few unpermitted cabins, not uncommon in rural areas of the Big Island).  The lowest priced listing is MLS 235158, a new listing in Green Sand Subdivision.  The highest priced listing in the district is MLS 227271, a 90+ acre Kiolakaa-Keaa Homesteads macadamia nut farm.

Search all Ka’u District listings here.

MLS 229241 Sold on 5/13/2010 for $475,000

Sold Listings: Since January 1, 2010, there have been 35 residential sales in the Kau district.  The lowest priced sale was an unpermitted REO in Ocean View Estates.  That property closed at $18,000.

The highest priced sold property was listed by Charlene A. Davis, R(S) and Andrea Peace, R, of Clark Realty Corporation’s Keauhou office.  MLS 229241, pictured left, closed earlier this month.  This home is in Kalana Golf Estates, on the golf course at Sea Mountain.

MLS 226807 sold on 5/10/2010 for $158,000

Another Kau home that recently sold is MLS 226807, listed by Shannon Underwood, R(S) and Andrea Peace, R, both of Clark Realty-Keauhou.  This new home, pictured right, is in Ocean View Estates. (85 of the 187 active Kau listings are in Ocean View Estates.)

Search Ocean View Estates residential listings.

Questions about Kau?

Home to the small rural communities of Naalehu and Pahala as well as the Colony One at Sea Mountain condos, Hawaiian Ocean View Estates (HOVE, or Ocean View Estates–one of the largest subdivisions in the country), and the Volcano Golf and Country Club subdivision, Kau offers a wide range of real estate options.

For more information about available listings and market trends, please contact one of the agents listed above, or call our referral coordinator, Mary Murphy, at 888 272-5662 for an agent referral.

Cynthia Hoskins, R(S) is Clark Realty Corporation’s Social Media Liaison
Follow us on Twitter | Connect with us on Facebook

New Ownership for The Big Island Country Club

Silagi Development and Management headed by Moshe Silagi has added The Big Island Country Club to its portfolio of Hawaii properties.

Intrawest and Silagi closed the transaction on May 5. Golf course renovations and other improvements will start immediately as well as plans for a clubhouse and future residential development.

Rick Oliver, R - Mauna Lani

Silagi Development and Management recognizes the advantages of the Pu’uanahulu community and the Big Island Country Club for its perfect golf weather and ideal location for homeowners.

Silagi feels the Big Island offers remarkable real estate opportunities and the island will continue to be a highly desired location by buyers for years to come.

Silagi was represented by Rick Oliver with Clark Realty Corporation and the seller Intrawest was represented by Scott Gomes with CB Richard Ellis Honolulu. Inquiries can be directed to Rick Oliver on behalf of Silagi Development and Management.

View the current West Hawaii Real Estate magazine as a PDF.

Contact Rick Oliver, R at 808.885.8700 (office) or 808.960.7330 (cell) or view his listings here.

A turn onto Puako Beach Drive, between mile markers 70 and 71 on Queen Kaahamanu Highway, leads residents and visitors down a winding road toward the coast and into this relaxed tropical haven that gracefully retains a distinct sense of Old Hawaii.

As you enter Puako, you will pass the Puako Small Boat Ramp and then the Hokuloa Church on the right. After two years of construction, this historic church was dedicated on March 21, 1860.  Still home to an active congregation, the church was renovated in 1990 and represents the residents’ commitment to preserving a history of the local community.

Down the road just a bit is the M’s Puako General Store, which opened in 1987. Owned by Narand and Urmila Patel, the General Store is a low-key gathering place where residents and guests of Puako’s vacation rentals are able to pick up a variety of supplies, relax with an ice cream after a walk to the beach, or borrow a book from the exchange shelf on the lanai.

Click here to view all Puako Beach Lots listings.

Beyond the General Store, Puako Beach Drive leads past many architecturally significant modern homes, several cottages and even a few remaining classic plantation-style homes, reminders of Puako’s varied history. Once accessible only by boat, the area surrounding Puako has been home to a sugar plantation, as well as “a charcoal making-operation, a honey-bee operation where bees were being shipped to Sweden, a hog farm, and a salt operation with salt sold to whalers and for meat.” (Mary Morrision, North Hawaii News, Nov. 30, 2000)

Known for family-friendly tide pools and beautiful views of Maui (across the Alenuihaha Channel to Haleakala), and of the Kohala mountains and Mauna Kea sunrises, Puako is also located near some of the Kohala coast’s most treasured natural and historic attractions.

The Puako Petroglyph Archaeological District is nearby, as well as Hapuna Beach State Park and miles of dive and snorkeling spots. Green sea turtles, a protected species, make themselves comfortable on Puako shores and humpback whales make their way from Alaska through the channel each year to breed in Hawaii’s warm waters.

With all this beauty and natural diversity comes responsibility to promote conservation efforts, so the Puako community has organized the Makai (Sea) Watch Program. Near beach access points, signs from the State of Hawaii provide reminders of the protected status of much of the wildlife found in this delicate ecosystem. The area is part of the Puako Bay and Puako Reef Marine Fisheries Management Area managed by the State Department of Land and Natural Resources.

The rich history and natural beauty of Puako set this small Kohala coast neighborhood apart and make it one of the Big Island’s most sought-after oceanfront communities.

If you are searching for a luxury permanent residence, a property where fractional ownership may be an option, or if you want to be alerted when there is a listing available in the Puako Beach Apartments, we value the opportunity to answer your questions about the real estate market in Puako.

Please contact us for more information about real estate opportunities on the Kohala Coast of Hawaii’s Big Island.

Hidden fees, bait-and-switch tactics, misrepresentation, non-disclosure.  These unethical lending tactics (as well as discrimination, predatory lending practices and, of course, old-fashioned, straight-up fraud) are pitfalls that may derail a well-intentioned buyer’s effort to successfully obtain a loan for a new home.

To protect buyers from these types of practices, laws exist that require lenders to provide very specific information to loan applicants early in the application process.  You may have noticed recent headlines announcing changes to some of these rules, so we want to take a closer look at what you should expect–and what you should watch out for–if you are starting the process of shopping for a loan.

First, the Background

• What is RESPA? The Real Estate Settlement Procedures Act was passed in 1974.  The purpose of RESPA is to help consumers make the best possible decisions about the loans they choose and to eliminate some of the unethical practices that raise the cost of obtaining a loan.  This is the law that requires lenders to give you certain documents at the time you apply for a loan.
• What is a GFE? The Good Faith Estimate is one of the required documents that you, as a buyer, receive at the time you submit a loan application.  This document lists the charges the you pay at settlement (at the closing table), including the costs the lender charges you to complete your loan process.  The GFE has undergone a revision recently that is intended to provide buyers with a clearer understanding of the charges associated with their loan and the fees for which they will be responsible at closing.

What to Expect from Your Good Faith Estimate

When you apply for a new loan, you will receive a GFE either immediately from your loan officer or within three days from the lender.  (Keep in mind that getting a general pre-approval is not the same as officially making application for a loan.  Be sure to discuss the process with your Mortgage Loan Originator.)

The new rules require that any lender fees be the same at closing as they are on the GFE you receive upon completing your application.  Costs associated with title insurance and closing fees can increase by no more than 10%.

Beware Attempts to Side-Step Regulations

Those who monitor the industry are reporting that some lenders are providing their clients with documents that are not official Good Faith Estimates, calling them “work sheets” and “loan scenarios.”  These types of documents are not subject to RESPA rules, so be very cautious about making decisions based on them.  Once you complete an official, full application, providing the lender all the information that they require, you should then receive your GFE.  Only then can you expect to be protected by the RESPA rules.

Resources for More Information

The US Department of Housing and Urban Development website has several resources that you can explore before meeting with a lender.  And, of course, your Realtor can also provide guidance through the process.

Here are a few links to get you started:

Looking for the Best Mortgage:  Shop, Compare, Negotiate (this a PDF booklet with worksheets from www.hud.gov)

Understand Your Borrower’s Rights

Protect Yourself from Predatory Lending Practices

It’s no secret that it has become more difficult over the last year to obtain conventional financing for the purchase of a property on the Big Island of Hawaii.  Banks and lenders are being cautious as they sort out new regulations and changes in how appraisals for certain loans are handled.  Lending options for Lava Zone 1 and 2 properties have become more restricted.  Loans for vacant land are rarely seen these days.

So, what’s a buyer to do?

First, of course, is to determine whether your personal financial situation is secure and you are ready to take on the responsibility of new debt.  If you are, there are alternatives to conventional financing that you and your agent can explore:

Purchase Money Mortgage/Agreement of Sale:
In some markets, seller financing is almost unheard of, but it’s a little different here on Hawaii Island.  There is a long tradition of transactions using Agreements of Sale and Purchase Money Mortgages.  In fact, there have been 118 listings sold using seller financing so far this year.  Down payment and interest rate terms are negotiable, but buyers should expect that most sellers will do a thorough credit check, so your credit rating is still very important.

Recognizing the differences between Agreements of Sale and PMMs is also important.  In an Agreement of Sale, the seller retains legal title until the buyer has fulfilled the obligations of the contract, but, otherwise, the buyer has full ownership rights and responsibilities. With a Purchase Money Mortgage, title is legally transferred to the buyer at the close of escrow.  A PMM is similar to a bank mortgage.  If you elect to use an Agreement of Sale or Purchase Money Mortgage, be sure you seek appropriate legal advice and fully understand the terms of your contract.

USDA Rural Housing Loans:
This is a great program for Hawaii Island, since most areas of the Big Island (with the exception of Hilo) are eligible.  Families with moderate but dependable income will usually fall within the income limits, and there is no minimum credit score required.  This program will allow the buyer to receive assistance with closing costs from the seller and, in some cases, the loan can be for up to 102% of the appraised value with zero down payment.  Homes that qualify for this program must be 100% habitable at the time of closing.

For more information view the “Guaranteed Rural Housing Loans” publication by USDA Rural Development (PDF).

FHA 203(K) Rehab Loans:
The 203(K) Rehab loan is a seldom-used program in Hawaii, but the Honolulu HUD office emphasizes that the loan is available for Big Island buyers.  This loan program is designed to allow a buyer to purchase an existing home that is in need of renovation or modernization, but to do the repairs after the close of escrow.  Funds approved for the renovation are held in escrow and disbursed in increments as the work is completed.  There are additional paperwork requirements and additional fees for a 203(K) loan, but, in a market where sellers may be unable to do necessary repairs before closing and buyers don’t have substantial cash reserves for repairs, this loan may be worth considering.

For more information read Rehab a Home W/HUD’s 203(k) on the US Department of Housing and Urban Development website.

At Clark Realty, we recognize the challenges of this unique market, and we will do our best to work with buyers and sellers to make the most of the opportunities presented by these challenges.  If we can answer more questions for you about these or other financing options, please feel free to contact us!

Great news from our neighbors to the east. The California Association of Realtors recently reported that the state’s inventory of unsold homes dropped from a 16.6 month supply of remaining inventory to a 6.7 month supply of remaining inventory.

The unloading of excess inventory is welcome relief and inventory is now considered to be in the within normal range. Any amount significantly below this often leaves buyers with too little to choose from.

This dramatic shift follows substantial price reductions that have spurred buyers into the market place looking for value while historically low interest rates are available. Southern California was the epicenter of our current financial crises so it is indeed heartening to see such a strong rebound in activity that is equally likely to spread.

It is expected that the recently enacted $8,000 federal tax credit that will be available for only the next 8 months to first time home buyers will continue to drive this market. Check this program out; if not for you, perhaps for your children or grandchildren.