The housing market in Hawaii is the strongest it has been since before 2008. In 2018, the median home price in the state settled at $538,400, just below its prior pre-housing bubble peak of $547,000. However, a surge in sales activity has led to a steep reduction in housing inventory, which, in the face of increasing demand, is pushing housing prices higher.

The fortunate homebuyer who does make an offer on a house is not only paying the full asking price, he or she is also paying among the highest closing costs in the country. Closing costs can vary widely in Hawaii from market to market and from lender to lender, which makes it all the more important to shop and compare them.

Average Closing Costs in Hawaii

For a state-by-state comparison of closing costs, a survey was conducted among lenders from each state based on the purchase of a $200,000 home with a 20% down payment. In Hawaii, homebuyers pay an average of $1,041 in origination fees and $1,450 in third-party fees for a total average of $2,490 in closing costs. That is the second highest in the nation, below New York, which topped the list with an average closing cost of $2,648. The country's lowest closing costs were in Wisconsin and South Dakota, both under $1,820. The national average for closing costs was $2,084.

A breakdown of lender and third-party closing costs shows a homebuyer in Hawaii pays an average of $677 for an appraisal, $614 for settlement costs, $24 for a credit report, $11 for flood certification, $50 for courier services and $840 for a survey. These average closing costs do not include title insurance, because it is a difficult figure for lenders to estimate. Title insurance fees can add more than $1,000 to the total costs.

What Goes Into Closing Costs?

Homebuyers in Hawaii can expect to pay between 3 and 5% of a home’s value in closing costs. Closing costs in Hawaii vary depending on the size of property, the market in which it is purchased and the lender. These are the typical closing costs found on a good faith estimate provided by the lender.

The loan origination fee covers a range of services performed by the lender, including processing underwriting, document preparation and funding for the loan. The fee is calculated as a percentage of the loan and stated as “points,” with 1% equaling one point. Points can be added to the closing costs if the homebuyer wishes to reduce the loan interest rate.

An appraisal fee is paid because an appraisal is required by the lender to ensure the property value supports the sale price and is reasonable in comparison to similar properties in the area.

The title company is responsible for handling the legal aspects of closing the sale. Homebuyers can hire their own attorneys to review settlements, but they will pay additional charges resulting in settlement/closing costs.

Lenders require buyers to purchase title insurance, which protects lenders against any defects in titles that might cause them to lose their first position on loans. Sellers are required to buy title insurance on buyers to guarantee clear titles.

Depending on the type of property and its location, some lenders may require a survey to ensure the integrity of the property lines. This is for the protection of both the lender and the buyer.

The buyer typically pays the cost of a pest inspection, and, if she requests it, the cost of a home inspection.

Since property tax liens usually take precedence over first mortgages, the lender protects itself by setting up and monitoring a property tax payment account to ensure payments are always current.

The Bottom Line

With its lush landscape and tropical climate, Hawaii has so much to offer homebuyers. But the market is so strong, with high home values and limited inventory. But another thing homebuyers need to consider are closing costs, which are among the highest in the country and well above the national average. Knowing what goes into this additional charge can help a homebuyer make more informed decisions before closing on a home.  

Montana (MT): Average Closing Costs

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