Steps to Purchase Your Hawaii Home

With my educational background in business and psychology working with individuals on both the Buying and Selling side of purchasing or selling real estate truly comes natural to me. I will represent you to my very best and the bar is high. I am very much a people oriented person who also happens to love crushing data!

Having the experience, knowledge, finesse, strategy and a proven track record I match Buyers based on their wants and needs locating options they can call their own piece of paradise. I negotiate getting the best price possible based on the market valuations.

Working with Buyers and Sellers in high end luxury real estate takes confidence, market strategy, connections, and knowing the market and sales data. Providing exceptional service and guidance in preparing for the steps to purchase your property, any requirement in having required proof of buyers funds available or pre-qualifications ahead to know your purchasing strength.

Once you enter into a contract, timelines are provided to help in the process to know what’s happening at every turn of the process. Understanding the real estate documents prior to purchasing and coordination of escrow who facilitates the transaction to recording. This page covers points you need to know and why working with Renee Kraft is knowing and trusting you are not hiring your average Broker to represent you for the purchase of your personal residence or investment property. You are hiring a highly experienced professional.

I believe that being your Real Estate Broker truly means one thing… I work for you. I am here to help you navigate through the real estate process of Buying your property with 100% confidence and 100% satisfaction.

It’s all about you, my client.

  • Your Needs
  • Your Dreams
  • Your Concerns
  • Your Questions
  • Your Life
  • Your Time

I have the systems in place to streamline the home buying process for you. Just a part of my pre-offer service includes:

  • Previewing Hawaii homes in advance on your behalf and via real time video.
  • Viewing pre-selected homes and neighborhoods with you
  • Keeping you informed of new homes hitting the market
  • Advising you of other similar properties selling and at what price

Benefits to you: as a self-directed real estate professional I work tirelessly to make sure your real estate needs and goals are met. You will receive the specific information you need by utilizing my expert market knowledge providing you extensive Buyer materials to understand the local area well Crafted and skilled in negotiations. Feel confident even if you’re not on island I HAVE YOUR BACK.

Any real estate agent will claim they can find you your dream home. Working with you will be a privilege and an honor to help you and your family find your special piece of paradise. As you’ve always imagined, feeling confident at a sales price that is right for you and with an experience of 100% satisfaction you will never forget.

Steps Along the Process:

  • Understand what price you have to pay.
  • Connect you with top rated mortgage lenders, banks and brokers.
  • Have the home inspected (not a requirement but recommended)
  • Order the property title report
  • Order staking/survey/TIR(termite inspection)
  • Handle the requests of all the parties involved in the transaction.
  • Respond to any issues in the process.

The Process of Making An Offer

Once you find a home you want to buy, you’ll submit your offer to the Seller via a purchase contract prepared by your real estate broker. It is submitted by the buyer to the seller for review and acceptance. If the seller accepts the offer, the contract becomes binding, subject to contingencies. However, the seller can either accept or decline the offer or make a counter-offer stating the terms of the offer that need to change or be added to be acceptable. The buyer can then accept or refuse the counter-offer, or make a counter-offer to the new terms. The offer does not become a binding contract until both parties agree to the terms and both sign the contract.

Home Inspection (J-1 Contingency of the Purchase Contract)

It is recommended in the J-1 period to have the property inspected by a professional licensed home inspector. I will provide you with recommendations for you to review and decide whom to use. The Seller is required to provide a Seller’s Real Property Disclosure typically within the window of the J-1 period. This allows you, myself, and the home inspector to review for any previous or current issues to be noted.

Generally, a standard home inspector’s report will cover the condition of the following:

  • Roof, attic and visible insulation
  • Central air conditioning system  (the scope of the inspection varies on the types of units)
  • Walls, ceilings, floors, windows and doors
  • Interior plumbing and electrical systems
  • Foundation checks and structural components

The fee for these inspections vary on the size of the residence. If you are acquiring an FHA or VA loan, an inspection of the property will be required. Please inquire for more information.

The inspection is a valuable tool in the process for further considerations in the purchase and puts the buyer on notice of most major defects in the property and repairs that buyer otherwise would have to undertake after taking possession. A thorough inspection may cause some buyers to back out of a sale, negotiate a lower sales price or ask the seller for repairs before closing: choices that a buyer without an inspection report would not have.

Customary Buyer Closing Costs

The following is a list of customary closing costs (including Hawaii General Excise Tax where applicable)

Charge to Buyer, if applicable:

  • 40% of the premium for standard coverage title insurance and
  • any additional costs relating to the issuance of extended
  • coverage policy (including a lender’s policy)
  • Cost of drafting mortgage and note or agreement of sale
  • Cost of obtaining Buyer’s consents
  • Buyer’s notary fees
  • All recording fees except documents to clear Seller’s title
  • 50% of Escrow fee
  • Condominium and Association ownership transfer fees
  • FHA or VA discount points and any mortgage fees

As part of the sale, the buyer can negotiate with the seller to pay a portion of their closing costs up to a certain percentage depending on the law and type of mortgage involved.

Mortgage

Choose a lender who is willing to explain the pre-approval, approval and closing processes clearly. Be sure that your lender explains all fees, up-front costs, taxes, insurance and other costs of owning a home.

Generally you must establish a few things in order to qualify for a mortgage loan; for example, adequate income to support the continuing loan obligations and credit worthiness to demonstrate persistence in meeting credit obligations.

The lender will consider your income to determine the amount of loan. Lenders look at your debt to income ratio to determine the amount of loan you will qualify for. In other words, the balances on your credit and other loans will reduce the amount of the mortgage loan you will qualify for. Your credit score determines the amount of interest and type of loan you can qualify for.

The down payment is equally important. This is the amount of money you have to reduce the amount you need to borrow or increase the value of the house you can purchase. Some of your down payment can be applied to your loan to decrease your loan interest; this is called buying down points.

-Pre-Approval Letters

Before you begin the process of finding your home or investment it is a good idea to understand what you are able to afford and how much you feel comfortable spending. Consult with your lender, CPA or personal source who will help you determine your ability to pay for your purchase whether all cash or if a lender will be involved. It has become customary prior to starting your search that your Broker or agent will check and work with you to secure your ability for your purchase of real estate. With any offer the Seller will want to see a pre-approval letter if a lender is involved. This letter tells the seller and their agent how much of a loan you qualify for, excluding the amount you have available for a down payment or have to bring to the closing table. This is based on your income, expenses, and credit, a lender will provide you with a pre-approval letter for the loan amount and type of loan that they are willing to lend to you based on those factors.

What is Title Insurance?

The purchase of a home is the largest investment most people will make in a lifetime; therefore, the importance of fully protecting such an investment cannot be overstressed. Title insurance is protection which assures that the rights and interests to the property are as expected, that the transfer of ownership is smoothly completed and that the new owner receives protection from future claims against the property. It is the most effective, most accepted and least expensive way to protect property ownership rights.

Because land endures over generations, many people may develop rights and claims to a particular property. The current owner’s rights—which often involve family and heirs—may be obscure. There may be other parties (such as government agencies, public utilities, lenders or private contractors) who also have “rights” to the property.

The lender requires title insurance to protect the investment in case the title comes into question after closing. Title insurance for the homeowner can be purchased at the same time so that the homeowner’s interest in the property can be protected.

The Escrow Process

After a purchase agreement has been signed, the escrow company steps in as a neutral third party to process and oversee the money and documents involved in transferring property ownership. The buyer and seller will sign escrow instructions, which list the contingencies from the purchase agreement and any other requirements for escrow to close.

The escrow company will require you to also complete a Statement of Identity form in order to differentiate you from others who may have the same name and, possibly, judgments, bankruptcies and liens filed against them.

-The Escrow Company’s Role

While the transaction is in escrow, the escrow company will provide the following:

  •  Order demands and other documents and information required for closing
  •  Contact the buyer’s lender to coordinate loan funding
  •  Coordinate payoff of the seller’s mortgage
  •  Forward the deed and other transaction-related documents to the county recorder for recording
  •  Handle final accounting and disbursement of any remaining funds to all parties
  •  Issue settlement statements, HUD 1s, seller’s Closing Disclosures and, if applicable, lender’s Closing Disclosures

-Funding the Transaction

Typically, buyers deposit a good faith earnest money down payment. Prior to the close of escrow, the buyer deposits the balance of funds and the lender funds the loan.

Closing Escrow

Closing is your final step in the process. During closing, the deed of title is delivered to the buyer, the title is transferred, financing documents and title insurance policies are exchanged, and the agreed-on costs are paid. Some of the final documents, including the deed and mortgage or deed of trust, are signed by the appropriate parties, and then delivered to the Bureau of Conveyances in Honolulu County to be recorded. Being on a neighbor island typically all documents to be recorded are pouched by escrow to Honolulu BOC two days prior to recording.

The length of the escrow period is determined between the Buyer and Seller. It can range from a period of less than 2 weeks to several months and will be specified in the purchase agreement. However, before escrow can close, several events must first occur:

  •  All parties must sign the escrow and closing documents.
  •  All contingencies in the purchase agreement must be satisfied and signed off..
  •  All monies required for closing, including the lender’s funds, must be deposited into    escrow.
  •  Transaction documents must be recorded with the county bureau of conveyances..
  •  All funds must be disbursed.

With the recording of the documents, which signifies the legal transfer of title, escrow closes. Time for your keys!

When and Why Utilizing a 1031 Exchange

Utilizing a 1031 Exchange in the Sale or Acquisition of investment Real Estate (please consult with your CPA or Attorney if a 1031 exchange is right for you) For questions on 1031 Exchanges contact:

Old Republic Exchange

Julie Bratton

Vice President & Regional Sales Executive
900 Fort Street Mall, Suite 955
Honolulu, HI 96813
877-591-1031
jbratton@oldrepublicexchange.com

You may have heard this phrase before, you may already be familiar with what it is, or you may not know what it is at all. Whichever category you fall under, you are most likely interested in a tax-efficient way of preserving capital invested in real estate.

Section 1031 of the Internal Revenue Code allows you to exchange real or personal property that was held for rental or investment purposes, or that was used in your trade or business (“relinquished property”), for other real or personal property that will also be held for rental or investment purposes, or that will be used in your trade or business (“replacement property”). This enables you to defer the payment of your ordinary income, capital gain, depreciation recapture and/or Medicare Surcharge (“Obamacare”) income tax liabilities.

1031 Exchange Benefits

Income Tax Consequences. The sale of investment real estate or personal property (non-real estate) may result in the recognition of ordinary income, capital gain, depreciation recapture and/or Medicare Surcharge (“Obamacare”) income tax liabilities. Payment of these income tax liabilities reduces the amount of cash available for reinvestment and makes it difficult for you to reinvest in larger, more profitable properties. Using a 1031 Exchange, you can defer the payment of your income tax liabilities, keeping 100% of your cash working for you by reinvesting in replacement property.

Exchanging Throughout Your Lifetime

The 1031 Exchange is certainly a great transaction tool to defer the payment of your income tax liabilities when you sell investment real estate, but it is much more than that. It is also a great wealth building tool. It allows you to continually defer the payment of your capital gain and depreciation recapture income tax liabilities over your lifetime. This means that you continue exchanging properties as a life-long strategy, always deferring the payment of your income tax liabilities and keeping your equity working for you. Using this strategy, the value of your real estate portfolio, and consequently your net worth, will grow exponentially faster over your lifetime as you continually defer the payment of your income tax liabilities.

Step-Up In Cost Basis

After your death, your heirs will inherit your property and receive a step-up in cost basis equal to the fair market value of the property at the time of your death. Your heirs can immediately sell the property without incurring any capital gain and/or depreciation recapture

Are you a Non-Resident of the State of Hawaii?

HARPTA Hawaii Real Property Tax Act

What IS HARPTA

Hawaii Revised Statutes (“HRS”) Section 235-68, requires the buyer who purchases real property from a non-resident of Hawaii to withhold 7.25%+ of the amount realized (generally the sales price) and remit it to the Department of Taxation within 20 days of closing unless an exemption applies.

The 7.25% withholding represents an estimate of the Hawaii capital gains tax that may be owed by the non-resident when selling real property in Hawaii.
The standard Hawaii Association of Realtors Purchase Contract provides that escrow is to withhold and remit the HARPTA amount to the Department of Taxation unless the seller provides the buyer with a certificate of exemption or waiver from HARPTA.

It is the seller’s burden to prove that an exemption / waiver applies and for the buyer to acknowledge and approve the seller’s exemption / waiver prior to closing. Under Hawaii law, it is the buyer’s responsibility to determine if the seller is a non-resident of Hawaii and that the proper withholding amount is remitted to the Department of Taxation on a timely basis.

FIRPTA: Foreign Investor Tax Act

What IS FIRPTA

The Foreign Investment in Real Property Tax Act (section 1445 of the IRC code) of 1980 (“FIRPTA”) provided that foreign investment in U.S. real estate would be subject to U.S. capital gains tax on dispositions of U.S. real property interests Every Buyer is required to deduct, withhold and pay to the Hawaii Department of Taxation 15% of the amount realized (typically the sales price).

Foreign investors who are using the property as their principal residence will only be charged withholding tax of 10%, if the gross sales price is greater than $300,000, but equal to or less than $1,000,000.

The withholding percentage represents an estimate of the federal capital gains tax that may be owed by the foreign seller when selling real property in the United States.

The standard Hawaii Association of REALTORS® Purchase Contract provides that escrow is to withhold and remit the FIRPTA amount to the IRS unless the seller provides the buyer with a certificate of exemption or waiver from HARPTA.

It is the seller’s burden to prove that an exemption / waiver applies and for the buyer to acknowledge and approve the seller’s exemption / waiver prior to closing. Under federal law, it is the buyer’s responsibility to determine if the seller is a foreigner subject to FIRPTA withholding and that the proper withholding amount is remitted to the IRS on a timely basis.

Any buyer who fails to comply with FIRPTA withholding at closing may be held liable by the IRS for the tax, penalty and interest.

Don’t trust the purchase of your property or investment to just anyone.
Choose a qualified, experienced professional Real Estate Broker.
Find out more about Renee H Kraft here.