AKAMAI MONEY
Consider government aid when buying your home

By Deborah Adamson
Advertiser Staff Writer

With home prices soaring all over Hawai'i, middle-income kama'aina families are finding it hard to buy a home.

In February, the median price for a single-family home in Honolulu rose 28 percent to $525,500 from a year ago. A 20 percent down payment on a home at that price would be $105,100 — and it still leaves you with a loan of $420,400.

If you can put down only 5 percent, you'd owe around $500,000, and your monthly payments would be $3,000 on a 30-year fixed-rate mortgage charging 6 percent interest.

Affording a house has become a challenge, but there are several government programs that might help. And don't count yourself out just because you think your income may be too high for government assistance.

"You have to debunk the myth of what low-income is," said Claudia Shay, executive director of the Self Help Housing Corp. of Hawai'i, a low-cost housing organization. "People I help are (working professionals such as) policemen, roofers, retail clerks, nurse's aides."

What's low-income? It would be a family of four making $54,250 a year or less in Honolulu, according to 2005 guidelines by the U.S. Department of Housing and Urban Development. Some assistance programs also help moderate-income earners — such as a Honolulu family of four making $81,300 or less.

Here are financial aid programs, tax breaks and strategies to help make you a homeowner:

• Self Help Housing Corp. of Hawai'i enables residents to buy a house and lot for less than half of Honolulu's median price. The group is finishing up a housing development in 'Ewa where three- to four-bedroom homes sold for $120,000 to $180,000 fee simple. Self Help received a $5 million grant from Honolulu, which it used to purchase the land.

It is in the process of securing land for its next project in 'Ewa, where fee-simple homes are expected to be priced at $165,000 to $240,000. These would be three- to four-bedroom homes, either one-story or two-story. While preference will be given to lower-income people, you can qualify if you make as much as $87,800, for a family of five in Honolulu.

The catch: Under professional supervision, the family must put in 32 hours a week to build their house. It could be eight hours a day for you and your spouse, working both Saturday and Sunday. For more information, call 842-7111.

• The American Dream Down Payment Initiative gives grants to first-time home buyers — folks who have not owned a home in the last three years, according to the Honolulu Department of Community Services. Last year, successful applicants received $10,000 grants. This year's funding will be available on July 1.

You'll qualify if you make 80 percent or less of the median income for your family size. For a family of five in Honolulu, it would be about $58,600.

The catch: You had made an offer on a house and it was accepted. You must be working with a lender, who will contact the county about the grant. For information, call 527-5907.

• The Honolulu Down Payment Loan Program provides low- or no-interest loans for 15 years to those making 80 percent of the median income for their family size. But you must not have owned a home in the last three years, according to the Honolulu Department of Community Services. For more information, call 527-5907.

• Mortgage credit certificates, or MCCs, let you take a federal tax credit on 20 percent of the mortgage interest. Your mortgage payment, especially in the early years, would consist mostly of interest, said Martin Arinaga, a certified financial planner in Mililani.

Let's say your mortgage and interest for the first year of home ownership is $18,000 —or $1,500 a month — and interest payments amount to $17,000 of the total. If you qualify for an MCC, you can take a tax credit of about $3,400, or 20 percent of interest paid. The remaining 80 percent is still tax-deductible.

The program is available to low- and moderate-income families. For details, call 587-0567.

• You may be able to withdraw from your IRA or Roth IRA without paying a 10 percent penalty if you're a first-time home buyer and younger than 59 1/2. However, you may have to pay income taxes, and there are other restrictions. For help, refer to www.irs.gov/publications/p590/index.html or call the IRS at (800) 829-1040.

Financial planners caution against tapping your retirement account because that's earmarked for the future. But it might be acceptable if you only need a small amount to close the deal on a house.

• Increase the number of exemptions on your W-2 and you'll take home more money. Since your mortgage interest is tax-deductible, you'll save money in taxes. As such, you can opt to withhold less.

Let's say your mortgage payment is $2,000 a month and 95 percent is interest. In a year, you would be paying nearly $23,000 in interest payments. If you're in the 25-percent federal tax bracket, you would save around $5,750 a year or $480 a month.

Bump up your exemptions so you will take home slightly less than $480 a month. By the time you pay taxes, it should all even out. Ask your human resources or payroll department for help.

Got a personal finance or consumer question? Reach

Deborah Adamson at dadamson@honoluluadvertiser.com. or 525-8088.