DSCR Loans in Hawaii: A Guide for International Real Estate Investors

Investing in Hawaii real estate

Volcanic activity may seem scary, but in the Pacific Ocean, it’s created something truly beautiful: the Hawaiian islands. Formed by volcanic eruptions deep within the Pacific Ocean over 5 million years ago, Hawaii's land is rich and its vistas are breathtaking. It’s no wonder nearly 10 million visitors traveled to Hawaii in 2024, spending over $20 billion! 

While real estate in Hawaii is a major investment, it can make financial sense for the right buyer. For non-U.S. citizens, the process can be complex and often requires additional guidance– don’t worry, we’ve got you covered. Keep reading to learn more about Hawaii’s unique real estate market, key considerations before purchasing, and how Waltz can simplify the process for foreign investors.

We are providing the following discussion to you for informational purposes only.  All investments, including real estate, involve risk, and we encourage you to invest carefully. The information in this article is not intended to replace or serve as a substitute for any legal, real estate, tax, or other professional advice or service. You should consult with a professional in the respective legal, tax, accounting, real estate, or other professional area before making any decisions or entering into any contracts relating to a rental property.

DSCR loans for foreign nationals investing in Hawaii

Many real estate investors use debt-service-coverage-ratio (DSCR) loans. DSCR loans are tailored to foreign investors looking to buy income-generating properties. 

What is a DSCR loan?

A DSCR loan allows investors to purchase rental properties in Hawaii without needing to live there. Unlike traditional loans, DSCR loans don’t depend on the borrower’s personal income; they focus instead on the property’s cash flow.

These loans offer flexible documentation and qualification requirements, making it easier for foreign investors to buy property in Hawaii and beyond. It streamlines the process compared to a conventional mortgage.

Benefits of DSCR loans for foreign nationals

DSCR (debt-service- coverage- ratio) loans provide a simple and effective financing option for foreign nationals interested in income-generating properties in Hawaii. 

Here’s why DSCR loans are viable option:

  • Cash flow-based approval: Lenders focus on the property’s rental income to ensure it can cover the loan payments.

  • Simplified documentation: These loans require less personal financial paperwork compared to traditional mortgage options.

  • Investor-friendly: DSCR loans are ideal for foreign nationals who don’t have a U.S. credit history or domestic income.

With DSCR loans, international investors can quickly expand their real estate portfolios. 

Explore DSCR loan options.

‍DSCR loan eligibility criteria

Lenders consider several factors when reviewing applications. Understanding these can make the process smoother and improve your chances of approval in Hawaii. Here’s what you should know:

1. Income verification

Most lenders: U.S. lenders usually prefer income earned in the U.S. because it is easier to verify. If your income comes from another country, you will need extra documents, such as translated bank statements, proof of salary, and U.S. tax returns if available. Even with the right paperwork, delays or denials often happen because many lenders do not prefer to work with foreign financial systems.

Waltz: Whether your earnings are from the U.S. or another country, we accept documents like local bank statements, employer pay slips, and rental income from properties you own. We also consider the rental income the Hawaii property you want to buy could earn, giving you a fair evaluation.

2. Down payment requirements

Most lenders: Foreign buyers are often asked to make large down payments. These payments are usually 30–50% of the property price. In some cases, this is two times the amount expected for Americans purchasing investment properties. Some lenders also require extra savings to cover possible costs, like repairs or empty rental months, which increases upfront expenses.

Waltz: We offer more flexible options. While 30% down payments are common, some qualified buyers can pay as little as 25%. We also adjust reserves to match your financial situation and the rental income the property could generate. 

3. Proof of identity and LLC formation

Most lenders: Many lenders require U.S. identification, such as a passport and visa. For investment properties, buyers are often required to create a U.S.-based LLC (Limited Liability Company), which involves setting it up and submitting its legal documents.

Waltz: We make this process easier for international buyers. All you need is a valid passport for identification. LLCs are a requirement for our investment property loans, however, our Investor Kit helps you set one up quickly and get an EIN (Employer Identification Number) in as little as minutes rather than waiting months.

4. Credit score

Most lenders: Most lenders rely on U.S.-based credit scores, which can make it hard for international buyers without a U.S. credit history. Even if you have strong credit in your home country, it can still lead to delays or denials.

Waltz: We understand that building a U.S. credit history can be difficult when living elsewhere. That’s why we review your credit from your home country among other factors to determine your creditworthiness. This allows us to fairly assess your financial reliability without requiring a U.S.-based credit score.

Find out how international investors have benefited from working with Waltz.

Types of properties available for purchase in Hawaii

Hawaii’s real estate market has a variety of investment opportunities. The right property depends on your financial goals. Here are some property types to consider:

  • Single-family houses: A single-family house is a detached property designed for one household. These homes provide space and privacy, making them popular with long-term residents and families. Areas like Kailua, Mililani, and parts of Maui offer single-family homes with access to highly rated schools and outdoor amenities. Oceanfront estates in locations such as Kahala and the North Shore cater to luxury buyers.

  • Condominiums: A condominium (or condo) is a privately owned unit within a larger residential building. Condo owners share walls with neighbors and have access to communal spaces, such as pools, gyms, and parking garages. Condos are a major part of Hawaii’s real estate market, especially in Honolulu, Waikiki, and resort areas on Maui and Kauai. Some condos allow short-term vacation rentals, while others have strict rental restrictions. Be mindful of Homeowners Association (HOA) fees, which cover the cost of shared amenities and building maintenance.

  • Townhouses: Townhouses are multi-level properties that share at least one wall with a neighboring unit but have their own private entrance. Townhouses offer a mix of privacy and low-maintenance living, as owners typically handle interior upkeep while an HOA maintains the exterior and shared spaces. These homes are common in Ewa Beach and Kapolei.

  • Multi-family properties: A multi-family property is a residential building with multiple housing units designed to accommodate more than one household. These include duplexes (two units), triplexes (three units), and fourplexes (four units), which can generate rental income for investors. Multi-family properties are found in residential neighborhoods and near urban centers like Honolulu and Hilo. Investors looking for larger-scale opportunities may consider apartment buildings with five or more units, which are often subject to Hawaii’s rental regulations and tenant protections.

Advantages of investing in Hawaii real estate

With its tropical climate and in-demand real estate market, Hawaii offers serious advantages for foreign buyers. These include: 

  • Strong real estate market: Hawaii has always been a popular place for property investment, and this trend shows that investors in Hawaiian real estate could see steady growth in their investments. According to a recent report, the median sold price of single-family homes has increased by nearly 73% since 2011, rising from $295,000 in 2011 to $510,000 in 2023. This steady increase is great news for investors, as it points to a strong potential for long-term gains.
  • Property tax considerations: Hawaii has the lowest property tax rate in the U.S. at 0.27%, making it an attractive option for investors. However, rental income is subject to progressive state income tax, ranging from 1.4% to 11%, depending on earnings. Landlords should factor in these taxes, along with expenses like maintenance and management fees, to ensure their rental property remains profitable.
  • High tourism demand: Hawaii is a great place for short-term rentals, offering significant profit potential. Many of the state's popular cities see occupancy rates for short-term rentals exceeding 70% each year. While some cities have strict rental regulations, areas like Kailua are more lenient. In fact, some high-demand cities can generate six-figure incomes from short-term rentals alone.

Top cities to explore in Hawaii

Hawaii is an idyllic state with a hot real estate market. Here are four Hawaiian cities to consider for investment real estate:

Honolulu

As Hawaii’s largest city, Honolulu offers a strong rental market driven by high tourism demand and a vibrant economy. The average property price is $773,168, and with a median household income over $100,000, residents can manage the higher cost of living. The city has seen significant rental growth, with 1-bedroom rents increasing the most year-over-year among western metro areas. Major employers like tourism, healthcare, and the military, along with two universities, make Honolulu a compelling investment choice.

Kailua

Kailua, located on Oahu, is known for its natural beauty and relaxed atmosphere. While it's the most expensive area on this list, with average property prices around $1.5 million, it offers a small-town vibe that's very walkable, nestled between the ocean and the Ko'olau Mountains. The Marine Corps base in the area provides a reliable stream of tenants, while Kailua's growing popularity with tourists makes it a promising destination for short-term rentals.

Hilo

Hilo, located on the Big Island, offers more affordable properties compared to the more tourist-heavy areas. Hilo has an average property price of $518,901, making it a better starting point for real estate investors. Known for its slower pace of life, Hilo is the largest town on the Big Island with just under 50,000 residents. Hilo also hosts popular festivals, including the internationally acclaimed Merrie Monarch hula festival. Not to mention, the Big Island, where Hilo is located, is where most people migrate to when moving to Hawaii, further supporting demand for housing and rental properties.

Kaneohe

Kaneohe, located on Oahu, is an appealing choice for real estate investors due to its stable rental market, which isn’t as reliant on tourism compared to other areas. This community is known for good schools, a suburban feel, and proximity to the Marine Corps base, all of which generate strong demand for housing. The area is also home to Kaneohe Bay, Hawaii's only barrier reef, and the Ho'omaluhia Botanical Garden. Additionally, Kaneohe is the seat of Windward Community College and hosts a campus of Hawaii Pacific University, ensuring a steady influx of students and faculty.

Specific considerations for mortgages in Hawaii

Hawaii real estate offers exciting opportunities for investors, but there are a few important factors to consider before purchasing property in the state. These include:

  • High property prices: Perhaps the biggest drawback of buying property in Hawaii is the high cost. The average property price is over $840,000, making Hawaii the most expensive state in the U.S. for real estate. On top of property prices, living expenses are also higher, with costs for transportation, groceries, and healthcare about 20% more than in other states, and utilities are nearly double the price. These high costs can create a significant financial burden for both renters and property owners who must maintain expensive properties.
  • Leasehold properties: In Hawaii, there are two types of property ownership: fee simple and leasehold. With fee simple, the buyer owns both the land and property forever. With leasehold, the buyer owns the property but rents the land for a set period. Leasehold properties are more common in Hawaii due to its unique land ownership history, though they also exist in states like New York and California. Investors should carefully review lease terms and rent increases, especially if you want to purchase real estate in a popular area like Waikiki.

  • Property insurance: Hawaii's weather can be beautiful – but it can also pose serious challenges for insurance. While hurricanes are less common than in other coastal areas, they still pose a threat from June to November. Recent wildfires on Maui highlighted the growing risk of fires, especially in areas experiencing drought conditions. Plus, volcanic eruptions are a regular occurrence, with eruptions happening every few years in certain areas. While extreme weather events can be rare, it’s important to be prepared for these natural risks if you purchase property here. 

DSCR refinancing process

Refinancing your Hawaii investment property means replacing your existing mortgage with a new one. This allows you to leverage your property’s equity to fund new investment opportunities.

Waltz provides tailored solutions to make the refinancing process smoother for Hawaii real estate investors. With our expertise, you can confidently optimize your investment strategy in Hawaii. For foreign nationals, the refinancing process typically includes:

  • Assessing your property’s current market value.
  • Reviewing various loan terms and interest rates to secure the best deal.
  • Preparing necessary financial documents, such as income verification and proof of property ownership.
  • Completing the application process.
  • Finalizing the refinancing transaction once approved.

Refinancing options in Hawaii

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Rate-and-term refinance

For foreign investors looking to improve their terms, rate-and-term refinancing offers an opportunity to do just that. This option lets you adjust the terms of your current mortgage, potentially securing more favorable loan conditions. Even if you refinance at a lower interest rate, it’s worth noting that your total finance charges could end up being higher over the life of the loan.

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Cash-out refinance

Cash-out refinancing enables you to tap into your property’s equity and borrow more than your current mortgage balance, based on the original equity. For those looking to invest in Hawaii real estate, the extra funds can be used for a variety of purposes, such as home improvements, debt consolidation, or a down payment on another property. This gives you cash at closing, expanding your investment opportunity potential.

Learn more about refinancing.

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Steps to get a DSCR investment property mortgage

Securing a DSCR mortgage with Waltz makes owning your next property easier than you think. Simply follow these steps:

1. Find a profitable investment

Think about what you want from the property and find a place that fits your budget and your goals. For example, you might want steady rental income from a multi-family property or a quick flip from a suburban house. 

2. Gather essential documents

You'll need a few key documents like your passport, proof of income (pay stubs or bank statements), and details on the property you’re interested in. Having everything ready will speed things up.

3. Select a lender experienced with foreign nationals

Work with a lender who’s experienced with international buyers. A lender like Waltz will walk you through the process with guidance tailored to your situation.

4. Set up an LLC and U.S. bank account2

You’ll need a U.S.-based LLC and a local bank account for investment properties. It’s a simple process, and Waltz can help you set up your LLC and get your Employer Identification Number (EIN) quickly.

5. Submit your loan application

Once everything’s ready, submit your application. Make sure all your paperwork is complete to avoid delays.

6. Perform due diligence

Before sealing the deal, hire an inspector to take a close look at the property. Make sure it’s in good shape, check that the price matches its value, and confirm that the terms fit what you’re expecting.

7. Complete the purchase process

When everything checks out, sign the papers, transfer the funds, and finalize your purchase. It’s that easy!

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Apply for a DSCR loan today.

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