Maui Real Estate Blog
Five Things to Know if You Want to Buy a Home with a Mortgage During the Covid-19 Pandemic
I talked to a lender earlier this week to find out more about how Covid-19 impacts home loans. These were my five biggest takeaways from my conversation.
Rates are fluctuating like crazy
When the Federal Reserve dropped the borrowing rate to zero early in the Covid-19 crisis, rates dropped to new record lows. The result was a huge demand for refinancing. Since the initial drop, rates bounced all over the place. There are a variety of factors at play causing rate fluctuations. They include basic supply and demand, the purchase of federal mortgage backed bonds by the Federal reserve, and concerns about the financial impact of forbearance from the investors who buy mortgages .
Whether you want to refinance or you are looking for a mortgage for a purchase, the current situation requires working closely with your lender to determine when it is a good time to lock your rate. If you tend to go to your local bank for all things mortgage, it may pay to shop around a little. While most banks are typically competitive with each other when it comes to rates, consumers can expect to find a much broader range in rates with the current volatility.
Lenders are tightening standards for credit scores
With greater economic uncertainty, banks are raising minimum credit scores to qualify for a loan. The banks are concerned about greater potential for foreclosure. As a result, they are shying away from buyers with credit issues. If you had a lower credit score but still qualified for a loan before Covid-19, it might be worth checking in with your preferred lender. In some cases, buyers are finding they may no longer qualify for a loan or the lenders will be seeking higher interest rates.
Expect repeated scrutiny of your income when obtaining a mortgage
Specifically, banks are really going to scrutinize your employment. Lenders are looking at the status of your employment, your hours and your wages repeatedly during the borrowing process. They will check early in the loan process, and they typically check at least two more times. Lenders are requiring proof of your employment status prior to signing final loan documents and prior to funding the loan. This stems from the number of prospective borrowers who are being laid off or seeing their hours or wages reduced.
If you are self employed, the banks will be looking more closely at recent income. They want to see signs that checks are still coming in steadily during the pandemic. The banks want to continuously make sure your financial picture does not change prior to closing.
The Jumbo loan market is shrinking
This one impacts the Hawaii market with the large number of high priced homes. Loans of $765,000 or more are considered to be a Jumbo loan in Hawaii. While there are still some banks offering jumbo loans, the options are shrinking.
Loans are taking longer
The demand for refinancing means that a lot of banks are taking a long time to process the volume of mortgages in their pipeline. Appraisal is a particularly big bottle neck. In some cases, banks are having staffing issues as employees balance work and kids at home due to school cancellations. The big take away for buyers is that you should give yourself room for delays in closing.
Other Covid-19 Impacts on Financing
This is not a comprehensive list. Don’t be surprised if we see additional changes in criteria for loans. The one thing I heard in my discussion with a lender was that mortgage standards, loan programs and the process remain in flux. It pays to have an experienced and capable lender in these circumstances.
Published April 19, 2020
Maui Real Estate Blog
Potential Mortgage Relief
Maui depends on tourism for a significant part of its economy. Covid-19 and the ensuing shut down means a big loss of income for a number of Maui homeowners. If you are a Maui resident unable to pay your mortgage, there may be some mortgage relief options for you based on the CARES act.
To be eligible, your mortgage needs to be federally owned or backed by a federal agency. Relevant federal agencies include:
- Fannie Mae
- Freddie Mac
It’s pretty clear when your loan is HUD, USDA, FHA or VA. Fannie and Freddie back over 50% of the nation’s mortgages, but not all homeowners know or remember who backs their loan. You can check to see if your loan is backed by Fannie or if it is backed by Freddie.
If you are unable to pay your mortgage due to financial difficulties related to Covid-19, you can contact your mortgage servicer to request forbearance for 180 days. Forbearance allows you to pause or reduce your mortgage for that 180 day period. To be clear, this does not reduce the principal on your loan. You would still need to pay off the missed payments or the difference on the reduced payment in the future. You may apply for an additional 180 day forbearance if your financial situation does not improve by the end of the first 180 days. Your forebearance options may depend in part on your loan program. If you are concerned by impacts on your credit score, servicers must not report to the credit agencies a Borrower who is on an active forbearance, repayment, or trial period plan due to COVID-19 related hardship.
If you are facing foreclosure due to existing loan challenges, your loan servicer or lender may not foreclose on you for 60 days after March 18th. The CARES Act forbids beginning either judicial or non-judicial foreclosure proceedings. The Act also prohibits finalizing a foreclosure judgement or sale during this period.
Still Confused or Need Help?
The Consumer Finance Protection Board offers a guide to Coronavirus mortgage relief options that gives advice and provides a lot more detail. They provide important suggestions like questions to ask your mortgage servicer. You may also find your nearest housing councilor by calling by calling (800) 569-4287. If you don’t have a federally backed mortgage and you are not able to pay your mortgage, you should still contact your mortgage servicer to see what options they may have available to you. Last, but not least be wary of scams. Unscrupulous Sleazeballs will try to take advantage of the current situation. Lean heavily on the advice of the CFPB.
Maui Real Estate Blog
What The FAQ is a Residential Condo?
If you browse through enough home or land listings on Maui, you may encounter some terms that may leave you scratching your head. Words like residential condominium, condominium home or CPR seem out of place when it comes to home and land listings. That said, these aren’t typos. Residential Condominiums are an increasingly popular form of ownership. This post attempts to define residential condos and answer some of the most frequently asked questions we receive from prospective residential condo buyers.
Frequently Asked Questions on Maui Residential Condos
What exactly is a residential condo?
I think it is safe to say that most understand how condos work in an apartment building setting. At a basic level, Residential condos takes the same principles and apply them to land that is zoned to allow multiple structures. For example, zoning rules for an agriculturally zoned lot allow the potential for a main house and a cottage. With the residential condo process, the main house and a surrounding area of land becomes one unit of the condo. The cottage and a surrounding area of land becomes the other unit of the condo.
I have seen the term CPR before in listing remarks. What does that mean?
CPR is not just an abbreviation for cardio pulmonary resuscitation. In a Hawaii real estate context, it is an abbreviation for Condominium Property Regime. The CPR process is how condominium homes are created. A CPR is the legal mechanism where a single property can be divided into two separate units of ownership. Each unit of ownership has its own deed, it may have its own mortgage and it has its own Tax Map Key.
How does a CPR process differ from a subdivision?
A CPR is not the same as a subdivision. The CPR process takes one property and divides it into two or more separate units of ownership. The process does not create additional entitlements to build more structures. For example, if you subdivided a five acre piece of agricultural land into to two lots, each lot would then have the potential for a home and a cottage. If the same five acre parcel were to go through the CPR process, one unit might have the rights to build a main house and the other unit may have the rights to the ohana unit.
Do I Own the Underlying Land with a Residential Condo?
The owners of the condominum units collectively own the underlying land. That said, limited common elements may be designated for the exclusive use of each unit. Exclusive is the key term. That means your partner in the condo can’t just meander into your yard area when they see fit.
Do Residential Condos have Common Elements?
Sometimes. The most frequent common elements relate to water and access. Two or more condos will sometimes share a single water meter. Two or more units might share a driveway or a portion of a driveway. In some cases, they may share both. Some residential condo properties on island have an area of common land shared by all of the different condo owners. There are some condo developments on island where almost all of the property is considered to be common element. In those cases, each unit may have a very small limited common element around the structure.
Do Residential Condos have Maintenance fees?
It is typical to have a nominal maintenance fee. Most frequently, the fee goes towards liability insurance for any common areas and the maintenance and maintenance reserves for those common areas. The larger and more elaborate the common area, the higher the fee. If there is nothing shared between the units of a condo, there may be no fee at all.
Are There More Rules with Residential Condos than a conventional home?
That depends on the intention of the people who created the condo. Some condo associations impose rules above and beyond county zoning. That said, most of the residential condo bylaws create no additional rules or regulations above and beyond county code.
Can any property go through the CPR process?
Some homeowners associations restrict CPR properties. For properties with existing structures, all homes need to go through miscellaneous inspections with the county. The structures need to comply with county zoning with all necessary permits in place. If the improvements on the property aren’t fully permitted, that could delay or prohibit the CPR process.
Is there a difference between a CPR property that is vacant land and a CPR property that has homes?
At a base level, they are similar. It is the same general process. I know some attorneys believe that CPRing raw land (sometimes called a spatial CPR) carries a little more risk. The risk is that one unit owner’s construction efforts could impact the construction efforts of the other unit owner. An owner who builds too much home or uses too many water fixtures could limit the plans of the other owner.
Typically, units of land sold as CPRs come with defined entitlements. Again, I will use an agricultural lot as an example. One unit of land receives entitlements to build a main house. The other unit of land receives entitlements to build an ohana of 1,000 square feet or less. If the ohana unit owner were to build first, and to build a structure larger than 1,000 square feet of living space, the owner of the main house unit may find themselves in a situation where they aren’t able to build over 1,000 square feet.
There is also some risk if the two unit owners share a county water meter. If the first person to build goes a little overboard with the number of plumbing fixtures for their unit, it could leave the other owner with fewer fixtures than anticipated.
I know of just one circumstance where the ohana side of the CPR overbuilt. I haven’t heard first hand of any issues with someone hogging all of the water fixtures. That said, I want to help illuminate potential risks even if they aren’t likely to occur. Condo documents should spell out the entitlements available to each unit. They should also offer some means to mitigate against the above risks. If there are any questions about the documents, hire a Hawaii Real Estate attorney to assist with document review.
Is there anything else I should know about the process of buying a residential condo?
There are a couple of things to note. If it is the first time the condo is being sold, the buyer has a 30 day rescission period. Not all attorneys are equal when it comes to the creation of condominium documents. More specifically, some do a great job and others write confusing documents with too many loop holes and ambiguities. Repeating the advice from the question above, it is worth the investment to hire a qualified Hawaii Real Estate attorney to review the condo documents. They can answer the legal questions about the condo documents that are outside the scope of your Realtor’s services.
Why do people choose to CPR a property?
There are a number of reasons why people choose to condo.
- Statistics show that the CPR process creates equity. The sum of selling the units of a CPR minus the cost of the CPR exceeds the value of a whole property that has not been through the CPR process.
- Not everyone wants or needs all of the building entitlements that come with a property. Some don’t want or need an ohana on their property.
- The units of a CPR tend to create more affordable options for buyers.
- CPRs allow for the split of a property in a tenants in common situation or among family members.
- It does not typically require the improvements necessary for a subdivision.
- It is typically faster than the subdivision process.
Are there any downsides to CPRing a property?
- We mentioned the potential risk with a spatial CPR above.
- The CPR process requires some sort of ongoing relationship between unit owners.
- There is the potential for shared liability with building or zoning violations. The County could attribute the violation to the whole property instead of citing just the specific unit.
- Taxes could go up on the property if you retain both units. This is particularly the case if you have a homeowner tax assessment.
Hopefully, this answers some of our reader’s questions on CPRs. Special thanks to Jacob Wormser, Attorney at Law. His letter to prospective condominium clients helped clarify some of my own questions on the CPR process. Still have questions? Contact the Maui Real Estate Team and we will do our best to provide answers or direct you to the right resources if we can’t do it ourselves.
Published August 13, 2019
Maui Real Estate Blog
Maui County Changes Accessory Dwelling Laws
The County of Maui Recently updated its laws regarding accessory dwellings. For those that don’t speak zoning, the term accessory dwellings refers to cottages or attached apartments. Locally, we refer to these structures as ohanas. With the island feeling the pinch of a housing shortage, the county council recently voted to remove the limit on minimum lot sizes for ohanas. The new zoning laws also allow for a second ohana unit on certain size lots. The change in laws increased the size limits for ohanas, and it also allows for larger deck spaces. The last significant change is a prohibition on accessory dwellings for use as a bed and breakfast home, short-term rental home or a transient vacation rental. The intent of all of this legislation is to address the shortage of long term rentals on island.
Accesory Dwellings on Smaller Lots
Previously, a lot had to be 7,500 square feet or larger to legally have an ohana. The new rules stipulate that any property may have an accessory dwelling. That said, smaller properties would still need to have sufficient space for off street parking to get a permit for an accessory dwelling.
Two Accessory Dwellings are now Allowed on Lots that are 7,500 Square Feet or Larger.
Lots that are 7,500 square feet or above have always allowed for ohanas. They are now allowed a second ohana on the property. As with the smaller lots, the stipulation is that any additional ohana also has sufficient off street parking.
New Size Limits for Accessory Dwellings
The county has increased the size of the ohana units allowed on a property. The table below shows the new size limits based on lot size.
|Lot Area in Square Feet||Maximum Gross Covered Floor Area (sq. ft)|
|Up to 7,499||500|
|7,500 to 9,999||600|
|10,000 to 21,799||720|
|21,780 to 43,599||840|
|43,560 to 87,119||960|
|87,120 or more||1,200|
It is notable that these numbers are per “ohana” and not the total for the two structures. Covered floor area includes “any covered storage; excludes carports, parking spaces, and garages (including areas therein that contain laundry facilities and utility equipment such as water heaters); and covered walkways or landings up-to four feet wide under eaves or overhangs that are not part of an uncovered open deck, patio, lanai or similar structure.”
Who Doesn’t Want to Have a Bigger Deck?
The changes in accessory dwelling rules also allows for bigger covered and uncovered lanai spaces. The new covered lanai spaces are shown via the table below.
|Lot Area in Square Feet||Maximum Gross Covered Floor Area (sq. ft)|
|Up to 7,499||200|
|7,500 to 9,999||240|
|10,000 to 21,799||280|
|21,780 to 43,599||320|
|43,560 to 87,119||360|
|87,120 or more||400|
The table above includes the square footage for covered decks, walkways, patios, lanai or similar structures.
There are similar allowances for uncovered decks, lanais and patios.
|Lot Area in Square Feet||Maximum Cumulative Floor Area (sq. ft)|
|Up to 7,499||200|
|7,500 to 9,999||240|
|10,000 to 21,779||280|
|21,780 to 43,559||320|
|43,550 to 87,119||360|
|87,120 or more||400|
For both of the above tables, “cumulative floor area” excludes walkways or landings up to four feet wide under eaves or overhangs that are not part of a deck, patio, lanai or similar structure.
No More Vacation Renting Accessory Dwellings
The underlying goal of the changes to accessory dwelling laws was to create more housing inventory for local residents. With that in mind, the county established a prohibition on using accessory dwellings as short terms rentals, vacation rentals or as part of a Bed and Breakfast. This is to ensure that the new accessory dwellings don’t become Airbnb rentals.
What’s Not Covered by the Bill
The changes to accessory dwelling laws are limited to properties with the appropriate zoning. One place where there might be some confusion is with properties that are zoned agricultural. While ag zoning allows for “ohanas,” the cottage structures on agricultural lots are considered to be “accessory farm dwellings.” The rules for “Accessory farm dwellings” have not been changed by this bill.
While this bill allows for an increase in density, home owners will find that that parking and water could be a constraint to building out a property to its full capacity. I had already mentioned the need for sufficient off street parking for any accessory dwelling. Fixture count will also be a factor for that property owners will need to consider if they want to take advantage of the new law.
Maui County limits the number of plumbing fixtures that can be installed with a standard 5/8ths inch water meter. It is pretty easy to hit fixture limits with a main house and an ohana. Within the last few years, the county started to allow home owners to buy additional fixture points. If someone wants to build a second accessory dwelling, they may need to buy the additional fixture points or even a second water meter. In places like the North Shore and Upcountry, a second water meter is not an option. Let’s hope that water constraints do not undercut the potential of the bill. With Maui in desperate need of more long term rentals, this bill seems like a positive step to generate some much needed rental housing.
Maui Real Estate Blog
Maui County Property Tax Rates for the 2017/2018 Fiscal Year
July 1 marked the start of the new fiscal year for Maui County. A new year brought a new budget and new property tax rates for the county. While recent history has seen tax rates decrease when property values have increased, this year was different. Rates went up for all classifications despite generally increased assessed values throughout the county. You will find the new rates below with last year’s rates provided for frame of reference.
- The new residential rate is $5.54 per $1,000 of assessed value. That is a 14 cent increase from last year’s rate of $5.40 per $1,000 of assessed value.
- The new apartment rate is $6.32 per $1,000 of assessed value. That is up 32 cents from last year’s rate of $6.000 per $1,000.
- The commercial rate for this year is $7.28 per $1,000 of assessed value. That is an increase of 68 cents from the 2016/2017 rate of $6.60 per $1,000 of assessed value.
- The industrial rate for this fiscal year is $7.49. That is an increase of 80 cents over last year’s rate of $6.69.
- The agricultural rate increased to $6.01 per $1,000 of assessed value. That is a change of 25 cents over last year’s rate of $5.66.
- The conservation rate for the year is $6.37 per $1,000 of assessed value. That increased from 57 cents over the last year’s rate of $5.80.
- The hotel/resort rate for this fiscal year is $9.37 per $1,000 of assessed value. That is a 66 cent increase over last year’s rate of $8.71 per $1,000 of assessed value.
- The timeshare rate went up to $15.43 per $1,000 of assessed value. That is an increase of $1.12 from the rate of $14.31 per $1,000 for the previous fiscal year.
- The homeowner rate increased to $2.86 per $1,000 of assessed value. That is an increase of 16 cents over last year’s rate of $2.70 per $1,000 of assessed value.
- The commercialized residential rate is $4.56 per $1,000 of assessed value. That is a 21 cent increase over last year’s rate of $4.35.
Property taxes are paid biannually in Maui County. The first bill comes up in August with the second bill following in February. Property owners are notified of changes in assessed values in March with the rates themselves deliberated and updated sometime between April and June during the year. If you have additional questions on Maui Property taxes check out the Maui county property tax FAQ.
Maui Real Estate Blog
Keonekai Villages 14-103, A Case Study for Buying vs Renting
Rents are rising on Maui. Borrowing costs remain low. In this type of market, a place like Keonekai Villages 14-103 is a compelling buy if you have money set aside for a down payment.
Keonekai Villages 14-103 is listed for $257,000. With 5% down at an interest rate of 3.92%, monthly mortgage payments are $1,154 a month. The current maintenance fee is $274 a month. That includes, water, trash, refuse and basic cable. Insurance would run roughly $300-$350 a year or $25 to $29.17 per month. That comes to $1,457.17 per month. Other expenses would include electricity, Internet and property taxes. The current owner is paying a $1,694 in property taxes annually. If you are a Maui Resident who paid local taxes in 2015, you could be eligible for a lower homeowner tax rate as long as you file for the new rate before the end of the year. With exemptions, your taxes would be $500 or less. I searched Craigslist to see if I could find any rentals in Keonekai Villages that might be comparable. The only recent listing I could find was asking $1,600 a month plus electricity. A Maui resident paying homeowner tax rates would be paying less to own the condo than the cost to rent.
Keonekai Villages 14-103 isn’t just a case study for buying, it also offers a great location. It is situated within a few blocks of the Kamaole II and III Beach Parks. These are some of the best swimming and snorkeling spots in South Kihei. Shops and restaurants are also within walking distance of Keonekai. The beaches and amenities of Wailea and Makena are anywhere from two to ten minutes drive.