What Canadian Buyers Need To Know BEFORE Buying In Hawaii
Canadians LOVE Maui and we LOVE our Canadian clients! We have identified some specific considerations for Canadian buyers.
Title and Escrow
In Hawaii, we use title companies and escrow officers to handle the transfer of the property, including the deed. This is different from the process that you are used to in Canada. The escrow officer, in addition to your Realtor, will communicate with you regarding issues of title, signatures, inspection time lines or other issues dealing with ownership and title.
This process can take 45 to 60 days or longer to complete.
There are a variety of fees and taxes that are customary in the U.S. that you may not be used to and are in addition to the purchase price. These may include:
- Escrow Fees
- Title Insurance
- Appraisal Fees
- Attorney Fees
Your Realtor should be able to give you a breakdown and estimate of all the fees that apply to you and your transaction.
- Mortgage Rules are different in the US, where you can finance up to 30 years.
- Lenders must be licensed in Hawaii, so you can’t use a Canadian lender to finance a Hawaii loan, however, you can get a loan such as a second mortgage on your home in Canada and use the money from that loan to make a cash purchase in Hawaii.
- Do you have established good U.S. credit? If so, that could make the lending process go more smoothly.
- Canadians typically need at least 30% down to get a loan (35% on condo-tels such as Aina Nalu or Kaanapali Shores).
- Canadians also typically pay ½ to ¾% higher loan rate than standard domestic buyers.
- Non-U.S. citizens are subject to FIRPTA (Foreign Investment in Real Property Tax Act). The act requires that 10-15% of the sale price is withheld from the seller’s proceeds at close of escrow to ensure U.S. taxes on the gain are paid. Once a U.S. tax return is filed, any over-payment is returned.
- HARPTA (Hawaii Real Property Tax Law) requires that 7.25% of the sale price be collected. Once a Hawaii tax return is filed, any overpayment is returned.
- There is 30% withholding on rental income to assure that US taxes are paid (if the Canadian owner doesn’t have a TIN – Taxpayer Identification Number).
- All foreign investors will need a TIN number. If they are not renting their property they may not need this immediately, however, it will be required when they sell the property. Canadians get the TIN at the time of purchase.
- Also, if a property will be rented to tenants or guests, the property owner needs to have a business license for collecting GET (General Excise Tax) and TAT (Transient Accommodations Tax) and needs to file regular returns to submit the taxes collected. More information here - Renting Residential Real Property.
- Real estate property taxes vary depending on how the property is being used. For hotel/short term rental usage, the tax rate for 2020-2021 is $10.70 or $11.08 (depending on the property classification) per $1000 of assessed value; for long term rental or apartment usage, the tax rate ranges from $5.75 to $6.90 per $1000 assessed value, depending on whether the property is considered residential or apartment and its assessed value. Owner occupants are assessed taxes at $2.51-$2.61 per $1000 and enjoy an exemption on the first $200,000 of assessed value.
- Further information regarding tax issues for Canadians can be found here.
Some documents will have to be notarized by a U.S. notary. The instructions will likely direct you to do the signing at the U.S. Embassy. That will likely require scheduling an appointment and can be time consuming. You should try to schedule this appointment two weeks in advance. It may be simpler to make the drive across the border to a notary in the U.S.
If the utilities are to be in the name of the new foreign owner, as opposed to a condo-tel, Hawaiian Electric will at least require notarized ID’s in order to open an account.
There are no mainland banks on Maui – only local Hawaii-based banks (No Wells Fargo, Bank of America, etc. branches exist in Hawaii). If you plan to have rental expenses such as electricity paid out of a Maui account or rental revenues deposited into a Maui account, you will need to open a Maui bank account.
Off island property owners who rent their property are required to hire a licensed property manager to manage the property. Property managers for long term rentals usually charge a fee of approximately 10%, while short term property managers charge fees from 25%-40% or higher, depending on services provided and how the management company is structured.
Terms and Definitions
Strata fees = AOAO fees
Subjects = contingencies: I’m told that in Canada they typically remove the subjects within 7 days. Our contingency and inspection periods can be much longer.
As Is – I’ve heard that in Canada when a home is sold, the seller must bring all aspects of the home up to code. In Maui, the seller is required to disclose anything that is not “in compliance”, and the home inspector may identify items that do not meet current code. Many properties are sold “AS IS”, meaning that the seller will not make repairs to the property before closing.