One of the biggest financial decisions you will make during your life is buying a house. Aside from that, it is also something that you need to plan for early on. 

Before you can determine a budget for your home purchase, you will have to evaluate your financial situation first. Then, you will have to know what expenses you will have to pay during the home buying process. 

Whether you’re planning to buy a house using your money, get a loan, or use Hawaii BAH (Basic Allowance for Housing), it’s best to know how to finance your home purchase. Here are some things to consider: 

Types of Mortgage Rate 

Typically, mortgage rates are based on the state of the economy. There are two forms of mortgage rates. This includes: 

  • Fixed-Rate Mortgages 

This is where your monthly payment and rate will stay the same for the whole term of your mortgage. Usually, this form of mortgage is simpler to manage since your payments per month are consistent.  

  • Variable-Rate Mortgages 

A variable-rate mortgage is a type of rate that changes with the prime lending rate. Over time, variable-rate mortgages are proven to be more affordable. However, your monthly payments will increase if interest rates increase. 

Factors That Affect Your Mortgage 

The money you will borrow from a lender to fund your home purchase is called the mortgage. Factors that will affect the amount you can get include: 

  • Price of the house 
  • Expected costs and closing expenses 
  • Monthly costs of the house 
  • Household income 

Minimum Down Payment 

For those who don’t know, the lump sum of money that you pay upfront when purchasing a house is called a down payment. In general, the size of your mortgage is equivalent to the price of the house, minus the down payment.  

So, the size of the down payment greatly affects your mortgage payment since it determines how much house you could afford and the amount of your mortgage payment per month.  

Minimum requirements for a down payment include: 

  • A full 20% down payment is needed for houses priced more than $1,000,000. 
  • For houses less than $1,000,000, the minimum is 5% on the first $500,000 and 10% on each dollar above $500,000. 

The Major Expenses of Buying a House 

These are the most important payments that you will want to think about when creating a budget for buying a house in Hawaii. 

  • Closing Expenses 

This is due at closing. It is 1.5% – 4% of the price of the house.  

  • Mortgage Insurance 

This is an insurance premium added to the mortgage principal. It is due at closing. It’s 2.8% – 4% of mortgage amount. 

  • Down Payments 

This is due at closing. Down payments are 5% – 20% of the price of the house.  

  • Deposits 

This is paid at the time of the accepted offer. It is included as part of the  down payment due at closing. It’s 5% of the price of the house.  

If you’ve got a better understanding of the finances involved in buying a house in Hawaii, you can be better prepared for making your payments.