Honolulu Homes Blog

Hawaii Banks Home Equity Line of Credit Rates

Many local Hawaii banks and federal credit unions offer very enticing introductory rates.

Here are a few Hawaii banks that I think will give you the biggest bang for your bucks.

Aloha Pacific Credit Union offers 0.5% for owner-occupied and 3% for investor properties.

American Savings Bank offers 1% APR first year and 2% APR second year.

Bank of Hawaii offers 1.75% APR for the first 24 months or 2.75% APR for the first 36 months.

Central Pacific Bank offers 1% APR for 1 year OR 1.75% APR for 2 years OR 2.75% for 3 years.

Hawaii State Federal Credit Union offers 0.99% APR for first year OR 1.99% APR for 2 years OR 2.99% APR for 3 years OR 3.99% APR for 4 years OR 4.99% APR for 5 years.

Hawaii USA Federal Credit Union offers 0.75% APR for 1 year OR 1.75% APR for 2 years OR 4.25% APR for 3 years.

Get your HOME EQUITY ACCELERATION PLAN by Roccy DeFrancesco today! Don’t delay…and stop making your bank rich!

How to Grow Your Down Payment?

We’ve talked about where to find your hidden down payment and also side gigs to earn extra money.

One thing we still need to explore is how to GROW your down payment.

It’s one thing to work extra hard to find that extra chunk of cash, but it’s another to figure how to grow that chunk of cash to hasten the process of accumulation.

Beat tax and inflation

This is the Wealth Formula…the mother of all formula that every investor needs to know.

After doing all those things discussed about finding that extra chunk of cash for down payment, we need to explore the rate of return.

Time you have limited control. The only thing you can do is ACT NOW!

But where you should park your money now while you save?

Tax now

Tax now…

Brokerage account

Certificate of deposit

Checking account

Savings Account

Tax later

Tax later…

401k/403(b)

Annuity

SEP IRA

Thrift Savings Plan (TSP)

Traditional IRA

Tax never

Tax never…

Be Your Own Bank  (life insurance)

Health Savings Account

ROTH IRA

ROTH TSP

Where can you save that can give you the most bang for your bucks?

You want good rate of return to beat inflation of 3.3% each year

Related article: Is Your Money is Your Savings Account Working Hard for You? Or for Your Bank?

You want maximum tax benefits

You want safety, meaning never lose money!

An indexed universal life (IUL) insurance can provide all these benefits better than IRAs, which limits access to money before age 59-1/2, or HSA, which limits your spending only on health-related expenses.

An IUL lets you capture the upside of the stock market (gain) beating inflation each year, but avoids the down side (loss). So your down payment money grows safely and aggressively with maximum tax benefits.

Learn more at Be Your Own Bank

When you’re ready to pull the trigger to make the purchase, you can take a tax-free withdrawal, keeping your new money in the cash account to continue to grow.

How to Buy Your Perfect Homes

Home ownership brings along the pride of being a home owner, social status, and not to mention many monetary benefits.

1. Tax breaks. The U.S. Tax Code lets you, the home owner, to deduct the interest you pay on your mortgage, your property taxes, as well as some of the costs involved in buying your home.

Related article: The Tax Benefits of Home Ownership

2. Appreciation. Ownership of real estate provides long-term and stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the NATIONAL ASSOCIATION OF REALTORS®. In addition, the number of U.S. households is expected to increase 15 percent over the next decade, creating continued high demand for housing.

Hawaii News Now - KGMB and KHNL

3. Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.

4. Savings. Building equity in your home is a ready-made savings plan. When you sell your home, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax. That's another tax break.

5. Predictability. Unlike rent, your fixed-mortgage payments are fixed over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will increase.

6. Freedom. The home is yours. You can decorate and remodel any way you want and benefit from your investment for as long as you own the home.

7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

Hidden Down Payment

Gift Money

No or Low Down Payment Home Loans

Subscribe to Blog via Email

Be the first to be notified of events, workshops and promotions directly to your email.

0% Down Payment

USDA Home Loan

VA Home Loan

Low Down Payment

FHA Home Loan

HomeReady Loan

Don’t Waste Your Money on Mortgage Life Insurance

First of all, what is Mortgage Life Insurance?

Mortgage Life insurance is an insurance policy designed specifically to pay off your mortgage in the event that you, the mortgage borrower, die before the mortgage is completely paid off.

Don’t confuse mortgage life insurance with private mortgage insurance or PMI. They are different animal. But both are equally hurtful to your wealth accumulation plan.

Mortgage life insurance are somewhat similar to traditional life insurance, but different in very significant ways. Both traditional life insurance and mortgage life insurance can provide a means of paying off your mortgage. With either type of insurance, you pay regular premiums to keep the coverage is in force.

A traditional life policy pays out death benefit when the borrower dies. But a mortgage life insurance policy doesn’t pay out unless the borrower dies while the mortgage itself is still in existence. And the death benefit goes to the mortgage lender, not the family members as in traditional life insurance.

Why would you buy life insurance to pay money to your mortgage lender, and not your family?

With mortgage life insurance, your mortgage lender is the beneficiary of the policy instead of beneficiaries you designate. When you pass away, the death benefit pays out to your lender to pay off the balance of your mortgage, so you family does not have to worry about the mortgage.

Well, it’s true that mortgage is taken care of for your family. But wouldn’t it be better for your loved ones to receive the death benefits and decide how they want to use that money and decide whether to pay off the mortgage. There may be more pressing needs than paying off the home, such as final expenses, private school or college tuition, etc.

Related article: Why You Need Final Expense Insurance?

Let’s look at mortgage life insurance more closely.

There are two basic types of mortgage life insurance: decreasing term, where the size of the policy decreases as the balance of the mortgage is being paid down until both reach zero; and level term, where the size of the policy does not decrease.

With a level premium, your premium stay the same for the duration of the policy. This feature sounds great – until you realize that while you’re paying the same premium, your coverage is shrinking as you pay off your mortgage over the years, which also means the potential payout decreases as well.

Some insurance company offer to return your premium if you pay off your mortgage before you die. Does this make up for the fact that your coverage declines although you keep paying the same amount? Not really.

After 15 or 30 years, when your mortgage is paid off and you get your premiums back, they’ll be worth far less because inflation will have eroded their value.

You also will have lost the opportunity to invest what you saved from purchasing cheaper life insurance instead of mortgage protection insurance. That’s 15 or 30 years of potential compounding returns down the drain.

Related article: How to Make Money Work for You

Traditional life insurance is often more affordable and allows you to name your children or spouse as the beneficiaries rather than the mortgage company.

The premium of the mortgage life insurance is usually lumped into the home loan, which means you are paying finance charges on the premium, which is already expensive.

Also, a mortgage life insurance stays with the house and it is not transferable. Now you’re stuck.

Basically, a mortgage life insurance is a waste of money. Any traditional life insurance (whether term or permanent) can offer much better level of protection for considerably smaller premiums.

A traditional life insurance maintains its death benefit value throughout the lifetime of the policy, and the death benefit pays out to your family whether or not your mortgage is paid off. It gives your family option to pay off the mortgage or use the money for more urgent things. And if the mortgage is paid off when you pass, that’s even better, your family can have all the money to use for whatever is important.

Mortgage life insurance is extremely profitable for mortgage lenders and/or insurers, but totally obsolete to borrowers. Remember, there are two lifespans to consider – your lifespan and the mortgage’s.

Mortgage protection insurance companies might try to convince you that you need their product in addition to life insurance. They’ll tell you that paying off the mortgage will eat up a major portion of your life insurance proceeds, leaving much less for your survivors to meet their basic living expenses.

If you are concern you don’t have enough life insurance, you should buy more. It will likely cost less to increase that coverage than to purchase a separate mortgage protection policy.

If you cannot qualify for traditional life insurance because of health reason, you would still be better off with a no-medical-exam (also called “guaranteed issue”) term policy with level premiums and a level death benefit. These policies cost a bit more, but at least you and your family will be protected.

You should consider mortgage life insurance only as a last resort.

Related article: Protect Your Home with Life Insurance

Why Private Mortgage Insurance Sucks?

If you're a home buyer, avoid private mortgage insurance like a plague.

Private mortgage insurance is an insurance policy that protects mortgage lenders against losses that result from you defaulting on a home mortgage, dies, or is otherwise unable to meet the contractual obligation of the mortgage.

It is usually required from mortgage borrower if their down payment is less than 20 percent

That’s right, you pay the insurance to protect your bank.

Private mortgage insurance may come with a typical “pay-as-you-go” premium payment, or it may be capitalized into a lump sum payment at the time of mortgage origination.

As an alternative to private mortgage insurance, some lenders may offer a “piggyback” second mortgage, which serves as or part of the down payment to avoid private mortgage insurance.

This option may be marketed as being cheaper for the borrower, but that doesn’t necessarily is true. Always compare the total cost before making a final decision.

Another alternative is “lender-paid insurance”, which sounds so much more reasonable. With lender-paid insurance, you are required to put down at least 10 percent as down payment.

That’s still a lot better than you paying for private mortgage insurance, which can add up to a lot of money, which could have been use to pay down the principal.

Not every lenders offer lender-paid insurance, so you have to shop around and ask, especially mortgage brokers. You can always get better deals from mortgage brokers than big banks.

Once you’ve paid off some of your loan and/or your equity in your property has increased to where your loan is less than 80% of your property value, you may be eligible to cancel your mortgage insurance. Once the mortgage insurance is cancelled, you will stop paying the monthly premium, which you can now use that as additional payment to the principal and pay off your mortgage a little bit faster.

Related article: Pay Off Your Mortgage in 7 Years

The private mortgage insurance does not cancelled automatically when your loans reaches less than 80% of your property’s value. You have to initiate the cancellation. So check your mortgage and property tax assessment value at least yearly.

Related article: Don’t waste your money on mortgage life insurance

Be the first to be notified of special events, workshops and promotions directly to your email.

Join 58 other subscribers

If you’re a home buyer, avoid private mortgage insurance like a plague.

Private mortgage insurance is an insurance policy that protects mortgage lenders against losses that result from you defaulting on a home mortgage, dies, or is otherwise unable to meet the contractual obligation of the mortgage.

It is usually required from mortgage borrower if their down payment is less than 20 percent

That’s right, you pay the insurance to protect your bank.

Private mortgage insurance may come with a typical “pay-as-you-go” premium payment, or it may be capitalized into a lump sum payment at the time of mortgage origination.

As an alternative to private mortgage insurance, some lenders may offer a “piggyback” second mortgage, which serves as or part of the down payment to avoid private mortgage insurance.

This option may be marketed as being cheaper for the borrower, but that doesn’t necessarily is true. Always compare the total cost before making a final decision.

Another alternative is “lender-paid insurance”, which sounds so much more reasonable. With lender-paid insurance, you are required to put down at least 10 percent as down payment.

That’s still a lot better than you paying for private mortgage insurance, which can add up to a lot of money, which could have been use to pay down the principal.

Not every lenders offer lender-paid insurance, so you have to shop around and ask, especially mortgage brokers. You can always get better deals from mortgage brokers than big banks.

Once you’ve paid off some of your loan and/or your equity in your property has increased to where your loan is less than 80% of your property value, you may be eligible to cancel your mortgage insurance. Once the mortgage insurance is cancelled, you will stop paying the monthly premium, which you can now use that as additional payment to the principal and pay off your mortgage a little bit faster.

Related article: Pay Off Your Mortgage in 7 Years

The private mortgage insurance does not cancelled automatically when your loans reaches less than 80% of your property’s value. You have to initiate the cancellation. So check your mortgage and property tax assessment value at least yearly.

Related article: Don’t waste your money on mortgage life insurance

Be Your Own Bank

Exploiting the living benefits of a cash value life insurance

The cash value life insurance is a little known secret for real estate investment or anyone planning their retirement.

The indexed universal life is the best investment vehicle. Why?

Cash value life insurance, as in it's name, is life insurance with cash value. Similar to a savings account associated with your life insurance. The difference is this "savings account" grows tax-free as part of the life insurance.

This is the bonus for real estate investors. Short on cash. Borrow from your cash value account interest free. How does that sound?

Let me clarify this a little. Every cash value life insurance policy is different. Most charge interest rate for borrowing. But some charge more and some charges less. The one that I have, charges 0.75% for first 1-9 years, then 0% after 10 years. Contact me to find out more.

The other thing is when you borrow money from your cash value, you'll not taking money out from your account, you're borrowing against your cash value, which is being used as a collateral for your loan. This is an added bonus, because your cash continues to grow tax-free while you're enjoying your extra cash interest-free.

Another bonus with borrowing from a cash value life insurance is that you don't have to repay your loan it you don't want to. How? Good questions!

Remember it is a life insurance policy. So it also has a face value. When you die, the insurance will pay off your loan with your policy's face value.

Isn't this a great idea? People always think that life insurance only benefit the family after you diet, but with a cash value life insurance, you got to benefit from it too before you die.

Need help with retirement planning?

Many wealthy people use a cash value life insurance for their retirement planning. Say you pay your insurance premium every year and contribute to the cash value at maximum level every year for thirty years, and never taken any loans out. Now you're 65 years old, and ready to retire. By now your cash value should have grown significantly over the years TAX-FREE.

Now you can stop paying premium, because your cash value is be used to pay your premium, and at the same time pay you money for the living expenses. Again, this pay-out is given in the form of a loan, so the cash value continues to grow while you enjoy your retirement, and you do not pay tax. Remember, Uncle Sam taxes earnings only when you withdraw it, but not loan interest.

Read Do You Have the Retirement Plan to Retire Rich?

With that all said, you might be wondering what's the best cash value life insurance?

I would have to say hands down the indexed universal life. This is like the Rolls Royce of life insurance. What make this particular policy so special is that your cash value never loses money. The one that I have tracks the indexes of Europe, Hong Kong and US - Euro Stoxx 50, Hang Seng and S&P 500.

As investor, you probably knows the risk of investing in stock markets - the ups and the downs. In this product, there is a floor of 1%, which means, even if the stock market tanks, I still get 1% return on my cash, and the ceiling is 13.75%, the maximum return I can get. I think this is pretty good deal because when you lost 5% in the stock market, you need a 10% return to regain what you lost. With this policy I have no loss, only gains.

Easy and Simple Marketing Strategies to Sell Your Home Fast

These are tried-and-true strategies that will sell your home fast.

1. The most important strategy is list your property on the Multiple Listing Service (MLS). If you want to list your property on the MLS, you’ll have to use an agent. However, I recently discover a new service for home sellers who want to do for-sale-by-owner. Check out owners.com. You can list your property on your local MLS for a reasonable fee through owners.com who has a license to list your property on the MLS for you.

Why do you want to list on the MLS? Because when a property is listed on MLS. It is automatically listed in other real estate websites as well, such as, Trulia, Zillow, Redfin, Google, etc.

Why is that important? Today, more than 95% of homes buyers find their homes online. Therefore, it is important to have an internet presents to be in front of as many potential buyers as possible. Furthermore, MLS are geared more toward retail home buyers, who are looking for their own homes, and are willing to pay more for properties.

2. Write an appealing listing description. In a MLS listing, there is a small space for agent to write a brief description of the property. You, as a home seller, assume your real estate agent is competent is writing an award-winning and catchy description that will get your property multiple offers in no time, right?

You are so wrong…You’ll be lucky if your real estate agent writes anything at all, let alone writing something appealing.
Whatever your agent is writing make sure they don’t use the following words or phrases in the listing. This list of words and phrases came a 3-year study in Dallas’ market and are found to be associated with lower sales price and longer days of markets.

Avoid these words or phrases:

“motivated sellers” - lower sale price and longer listing period.
“good buy” - lower sale price
“vacant” - lower sale price, assume can offer less. Not need to.
“repairs” - longer time on market and lower sale price. However, “updated” sold for higher price.
“good location” - lower sale price

Instead, focus on using the listing description to draw out emotion and help buyers to visualize living in the property. People buy for emotional reasons and justify with logic later.

3. Including a link to a video tour of your property is the simplest thing that anyone can easily do. Almost everyone has a camera with video recording capacity on their smart phone. So there is almost no reason to NOT to do one. A video tour is a great opportunity to showcase the best features of the property. Remember, your listing agent is not necessarily the one who shows your property. it’s usually the buyer’s agent who shows the property, and very likely he/she is showing the buyer another 3-4 properties too. So your potential home buyers will not know all the cool features of your property.

Remember, 95% of home buyers search for their homes on the internet, a video tour will give them a very good reason to call their agent to schedule a showing at your property.

4. Price it right at the start to avoid property sitting on market for too long. When you see a property with a days on market greater than a month, the number one reason is always price.

One of the thing I see frequently on the MLS is the astronomical asking price. This intimidates many potential buyers because real estate prices are already high. Most logic behind listing high is “I’ll start high and see if anyone would buy. If not, I’ll drop the price”. And real estate agent doesn’t mind that logic and, in fact, some promotes it telling seller it’s seller’s market. Really? Or it is because their commission is tied to the sales prices…

When I see sellers start reducing price, I know this is a motivated seller, and will put in a low-ball offer.

Sometimes, home sellers worry that they priced too low and is selling themselves short. No…sales price is determined by supply and demand. If you list at a reasonable price, compared to all those overpriced listing, home buyers feels they’re getting a deal, and you’ll end up with multiple offers, which creates competition. You know how competition makes people wants to win, and likely offer to buy at a price higher than your asking price.

When you list at too high of a sales price, you risk not getting any offer, then your property sits on the market. The longer it sits on the market, the less interest you’ll get from home buyers because they’re concern that something is wrong with the property that’s why it still not sold.

Another reason why listing high to start is a bad move is because when you first list your property on MLS, that listing is distributed to other sites. But when you reduce the price, MLS does not update other sites. And you end up missing many potential buyers because your property will be out of many buyers price range.

Pricing too high not only cause your property to sit on the market for too and ending selling for a lot cheaper, but it also end costing your more considering all the expenses you have to pay on an empty property.

5. Your first offeror (the person who put the offer) is always, always, always your best, assuming this person has the ability to purchase with cash or mortgage. This offer may not be the best offer. First offer is usually lower than what they are willing to pay, or the terms needs to be worked out. The reason why your first offeror is the best is likely because these individuals has been on the market looking for a specific property, and when yours show up on MLS, they spot it, they want it and put an offer right away.

Remember, no matter how good your real estate agent, or he/she is your cousin or neighbor, these people have different motivation than yours as a home seller.

Gift Money or Gift Funds for Down Payment

Gift Money for Down Payment

What You Need to Know…

What You Need to Know About Using Gift Money or Gift Funds for Down Payment

Gift funds for down payment on home purchase is allowed by both FHA and Fannie Mae and Freddie Mac, however, there are rules and regulations with regards to gift funds and each loan program has their own lending guidelines on gift funds. 

Many families help each other out, especially in Hawaii. Gifting money also helps with estate tax later.

A parent may give their children gift funds to purchase a home.  A grand parent may give their grandchild gift funds to be used towards the down payment of their home purchase. A couple may get gift funds as their wedding gift from family or close relatives where they can use that as a down payment for their home purchase.

Why Are Lenders So Uptight About Gift Funds?

Mortgage lenders want to make sure that the gift funds are actual gifts and not loans. If an applicant were to borrow part of the funds required to complete the transaction, that monthly expense would need to be accounted for in their debt-to-income ratio. Mortgage lenders want you successful in making your mortgage payments.

Gift funds do not need to be repaid, so there is no additional burden on the borrower. And it is the only type of financial assistance that doesn’t change the borrower’s capacity to borrow, it has historically been one of the most abused and cheated aspects in lending.

To combat such fraud, underwriting guidelines have been put in place to ensure that the gift fund is in deed a real gift!

Before you accept gift funds for down payment on a home purchase, check with your loan officer for instructions. 

You loan officer will tell you that gift funds for down payment needs to be sourced.  The donor of gift funds for down payment on your home purchase needs to complete a gift letter which states that the gift funds is not a loan and that the gift funds does not need to be paid back. 

The donor of the gift funds needs to provide 30 days of the donor’s bank statement showing that the gift funds was seasoned in the donor’s bank account for at least 30 days. The gift funds leaving the donor’s account needs to be reflected in the bank statement of the donor. 

The recipient of the gift funds needs to provide the copy of the check, the deposit slip, and a new bank transactional history print out that is signed, dated, and stamped by the bank teller reflecting the funds in the bank account of the recipient.

The Gift Letter must contain the following information:

The donor’s name, address and phone number
The donor’s relations to the homebuyer/recipient
The dollar amount of the gift for down payment
The date that the gift fund is transferred to the homebuyer
A written statement from the gift donor’s stating that the fund is a gift and NOT a loan that needs to be repaid.
The gift fund donor’s signature
The address of the property to be purchased.

Gift funds can only be given by a close family member.

The person giving the gift will need to:
§ Sign a Gift Letter that includes their complete contact information and amount of the gift.
§ Provide a copy of the check or financial instrument used to transfer the gift.
§ Provide proof that they themselves had the ability to give the gift (the money was in their account).

The gift recipient will need to provide proof those transferred funds were deposited in an account they hold.

How Much of the Down Payment Can be from a Gift?

That depends on the type of home loans.

For conventional home loans, if you putting 20% down payment or more, then the whole amount can be gifted.

However, if you’re putting less than 20% down, only part of the down payment can be from a gift fund, and the rest has to be from your own fund.

Gift funds for down payment is only allowed on owner-occupied primary and second residences. Gift funds are not allowed for investment property purchase.

What About FHA Loans and VA Loans?

Both FHA loans and VA loans allow 100% gift funds for down payment for home purchase. Both loans are for owner-occupant only.

If you are purchasing an investment property, gift funds cannot be used at all, period.

It is VERY important to note that if gift funds are provided early enough in the process, and those funds have remained in the borrowers own accounts for more than 60 days, no gift funds supporting documentation is required.

Gifts are not restricted to only money. Gifts can also be in the form of equity in a property. If parents wish to have their child purchase a property from them, the parents can gift a portion of the equity to be used as the child’s down payment.

What Else Do You Need to Know About Gift Money…

Gift Tax, sometimes confused with Inheritance or Estate Tax, is a tax on the transfer of cash, asset, property from one person to another while receiving nothing in return, in another word, as a gift.  

In most states, the tax applies whether the donor intends the transfer to be a gift or not.  

The Gift Tax and Estate Tax are closely related.  The IRS allows you to give up to $14,000 per year to any number of people without incurring any gift taxes.

If the gift exceeds $14,000 in a given year, the person who makes the gift, not the recipient, has to file a gift tax return and pay any tax owed. However, there is $5,430,000 lifetime exemption before you have to pay gift tax.

Any gift that exceeds the annual exemption of $14,000 reduces your estate tax lifetime exemption of $5,430,000.  For example, you give your son $114,000 in 2015.   $14,000 is exempted while you have to file a gift tax return and report that you used $100,000 of your $5,430,000 lifetime exemption.

Here’s the good news…

There is NO gift tax in Hawaii.  All Gift Tax are exempt in the State of Hawaii.

If the total estate asset (property, cash, etc.) is over $5,430,000, then it is subject to the Federal Estate Tax.