Financing a Hawaii Home During a Military Assignment

Real Estate Financing Programs

Have you been given the dream military assignment of Hawaii? Living in paradise while serving our country definitely has its benefits – including the possibility of buying a Hawaii home.

Why buy in Hawaii during a military assignment?

There are two great reasons to buy a home while you are stationed in Hawaii.

• First, you could potentially make thousands of dollars in appreciation, while putting zero down with a Veterans Administration (VA) loan and using your Basic Allowance for Housing (BAH) as the monthly mortgage payment.
• Second, living off base offers a different view of Hawaii life – while still having the perks of base.

Hawaii houses could appreciate thousands of dollars during your assignment

Many stories exist about military families moving to the islands for a few years and then leaving with thousands of dollars in appreciation. While the Hawaii housing marketing is one of the most expensive in the country, long-term home values have always positively appreciated over the past decades. In fact, Hawaii real estate historically has risen between 3 to 15 percent per year.

Imagine buying a house in Aiea for $800,000, and then reselling it 3 years later for $900,000 – an annual appreciation rate of 4 percent. That is possible in the Hawaii housing market.

A Veterans Administration (VA) Loan makes buying a home an attractive option

The VA Loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs. It was created in 1944 and is an attractive loan option for many reasons:

• No down payment needed, 0 percent down
• No Private Mortgage Insurance (PMI) required
• Do not need an excellent credit score, easier to qualify
• Competitive interest rates

In Hawaii, you can use the VA loan to buy many types of homes (which must meet minimum property requirements):

• an existing single-family home
• a newly constructed residence
• a condominium or townhouse (in a VA-approved project)
• a multi-family home (up to 4 units)
• a manufactured home or lot

These types of homes can be purchased with zero down for a mortgage of up to $726,525. And if you need a mortgage above that limit, you simply need to put 25 percent down on the exceeding amount. For example, if your Hawaii dream home is $1,000,000, you would need to make a down payment of $68,368.75 (($1,000,000-$726,525) x 0.25).

The following military members are eligible for a VA loan:

• Veterans
• Active duty service members: must have served 90 consecutive active service days during wartime or served 181 active service days during peacetime
• Reservists: must have more than 6 years in the Reserves
• National Guard members: must have more than 6 years of service in the National Guard
• Spouses of deceased or disabled military members

If you are eligible, you will need to obtain a Certificate of Eligibility (COE) through any of these avenues: a VA approved lender, online through the VA’s eBenefits portal, by mail with a VA Form 26-1880. To apply, you will need basic information and you might also need other documentation, like a copy of your DD214 to prove military service.

Before or after receiving your COE, it is recommended to choose a VA lender that is based in Hawaii. There are a number of local Hawaii lenders who offer competitive rates and often have better service and results than a mainland lender. A VA lender will make the mortgage process much easier, especially in the unique Hawaii housing market. When shopping for a local VA mortgage lender, here are some questions to ask:

• How many VA loans do you typically do in a month?
• How long will it take to get the loan approved and then funded?
• Do you have contacts at the VA?
• How do you submit my application to the VA?
• Will you pay non-allowable fees (i.e. loan application fees, interest rate lock-in fees, document preparation fees, escrow or notary fees, loan closing and settlement fees)?

Once you are eligible for a VA loan and have found a reputable local lender, the Hawaii house hunt can commence.

The Basic Allowance for Housing BAH in Hawaii is high enough to cover a significant portion of your mortgage payments

Don’t go into sticker shock when viewing the high prices of Hawaii homes. Active duty military members stationed in Hawaii receive a significant BAH, which differs according to rank. If you were a married E09 living on an Oahu (Honolulu County) base, you would receive $3507 as your BAH in Hawaii in addition to a Cost of Living Adjustment (COLA). Instead of using the BAH to pay rent, you could use it to pay mortgage payments – which is made even easier with a VA loan with nothing down.

How much is BAH in Hawaii? If you are stationed on Oahu in Honolulu County, the following is the non-taxable 2020 BAH in Hawaii according to rank, which began January 1, 2020:

Using your BAH to buy a home can make a lot of fiscal sense. A $700,000 home in Ewa Beach with a 0% down payment on a VA loan and an interest rate of 3.5% might have around a $3,300 monthly payment, including property taxes and a $50 association fee. If you are married and an E8, your BAH in Hawaii would cover this entire mortgage payment, making your money go into the value of the home instead of rent.

The Specially Adapted Housing (SAH) Grant offers an additional home financing option to certain military members and veterans

The Veterans Administration grants service members and veterans with certain service-connected disabilities funds to help purchase or build an adapted home or modify an existing home.

SAH grants can be used in the following ways:

• Construct a specially adapted home on land to be bought
• Build a home on already owned land
• Remodel an existing home to be specially adapted
• Apply the grant to pay the unpaid principal mortgage balance of an adapted home already acquired without a VA grant

The maximum dollar amount for fiscal year 2020 is $90,364 for a SAH grant, so view the details and application process if you have a service-related disability that might benefit from having a specially adapted home.

Buying a home during a military assignment often makes sense financially and allows you to experience Hawaii outside the military installation

Buying a home in Hawaii is not only often a wise move financially, but it also offers an escape from the look-alike houses on base. Enjoy the unique Hawaii architecture, the welcoming neighborhoods, and the plentiful activities in paradise while living in a Hawaii home.