How to Finance a Big Island Second Home or Vacation Rental

Most of the buyers I work with live on the US mainland or in Canada and are buying a Big Island condo or home as a second home, a vacation rental, or a bit of both. The financing questions are different from buying a primary residence, and a few of them surprise people. This page walks through the main ones in plain English, with a source for every rule or number so you can read the original yourself.

Second home or investment property: how you use it matters

Lenders sort properties by how the borrower will use them. The category you fall into affects the loan terms, so it is worth understanding before you start shopping. Fannie Mae, one of the two big companies behind conventional US mortgages, publishes its definitions in its Selling Guide. Other lenders and investors can have their own rules, but these are a useful baseline.

• Second home. Under Fannie Mae's guide, a second home must be occupied by the borrower for some portion of the year, is limited to a one-unit dwelling, must be suitable for year-round occupancy, and the borrower must have exclusive control over it. It must not be a rental property or a timeshare arrangement, and it cannot be subject to agreements that give a management firm control over the occupancy of the property. [1]
• Investment property. Fannie Mae says an investment property is owned but not occupied by the borrower. [1]
• If there is some rental income. The same guide says that if the lender identifies rental income, the loan can still be delivered as a second home if that income is not used for qualifying and all the other second-home requirements are met. [1]

What this means in practice: if you plan to rent your unit out regularly, especially through a rental program or a management company that controls the bookings, you may be looking at investment-property financing rather than second-home financing. Be upfront with your loan officer about your real plans. The occupancy type goes into the loan, so it has to match how you intend to use the place.

Down payments: what the sources say

I am not going to guess at a down payment for you. Here is what the sources I read actually state. Your lender may require more than any of these.

Whatever the program, ask each lender for an official Loan Estimate and compare them side by side. The Consumer Financial Protection Bureau recommends always comparing official Loan Estimates before you decide. [7]

Condo project approval and resort buildings

Many Big Island vacation buyers are looking at condos, and with a condo the lender approves two things: you, and the building. For conventional loans, Fannie Mae says the lender must determine that the project meets its eligibility requirements before delivering a loan on a unit in a condo project. [4]

You will hear the terms "warrantable" and "non-warrantable." They are industry shorthand, not a Fannie Mae term. Bankrate describes non-warrantable (or "unwarrantable") projects as ones where the units do not qualify for loans backed by Fannie Mae and Freddie Mac, and says loans on those units are generally held in a lender's own portfolio or sold to private investors. [5]

Why resort and rental-oriented buildings can be harder

Fannie Mae's list of ineligible projects includes several features that show up in some resort and condo-hotel style buildings. According to the Selling Guide topic dated August 5, 2026, a project is ineligible if, among other things: [3]

• it is managed and operated as a hotel or motel, or the association is licensed as a hotel, motel, resort or hospitality entity;
• its legal or common name includes "hotel, motel, or resort" (unless that only refers to past use), or it is marketed as a hotel, motel, resort or investment opportunity;
• it has mandatory rental pooling agreements, or restricts the owner's ability to occupy the unit;
• it is a timeshare, fractional or segmented ownership project;
• commercial space exceeds 35%, or the association owns non-incidental businesses such as restaurants, spas or health clubs;
• it is involved in qualifying pending litigation or needs critical repairs.

I am not saying any particular Kona Coast building falls into these categories. Every building is different, and the guide has more detail than I can summarize here. The point is that the building itself can limit your financing options, and you want to learn that before you are under contract. Bankrate also notes that Fannie Mae's list of projects it will not lend on is not publicly available, so ask your loan officer early whether a specific building is financeable. [5] If you tell me which buildings you are considering, I can help you request the association documents your lender will want to see.

For more on how condos work here, see my Big Island condo buying basics page.

DSCR and portfolio loans

If a conventional loan does not fit, either because of how you plan to use the property or because of the building, some buyers look at other loan types. Two come up often:

• DSCR loans. NerdWallet explains that these let real estate investors qualify based on a property's projected rental income, rather than mainly on personal income. The "debt service coverage ratio" compares the property's monthly rental income to its monthly loan payment, and NerdWallet says lenders generally look for a ratio of about 1.25 or higher. The same article lists potential trade-offs, including possibly higher interest rates, a down payment of at least 20%, cash reserves, and prepayment penalties on most of these loans. It also says they cannot be used to buy a primary residence. [6]
• Portfolio loans. These are loans a lender keeps on its own books instead of selling to Fannie Mae or Freddie Mac. Bankrate describes non-warrantable condo loans this way. [5] Terms vary widely from one lender to the next.

I can't tell you whether either option makes sense for you. A licensed loan officer can walk through the details, and my investor resources page has more material for rental buyers.

Buying with cash

Some buyers pay cash, often to keep things simple or to compete on a building that is hard to finance. A cash purchase has no lender, so there is no lender approval of the building. It does not remove the other items on this page: you still need to read the association documents, plan for ongoing costs, and understand the tax rules for owning, renting and eventually selling. If you are weighing cash against a loan, run both scenarios past your tax professional.

Canadian buyers

Many of the buyers I work with are Canadian. These are the main points the sources raise.

• Two common paths to a loan. RE/MAX Canada says that with a US mortgage you will typically be asked for proof of income, credit history and details about your Canadian assets, and that many Canadian banks with US operations offer cross-border mortgage solutions that let you use your Canadian credit history and assets. [8] Canadian Mortgage Professional adds that traditional US lenders often have strict requirements that can be hard for Canadians to meet, and that lenders may charge higher interest rates to foreign nationals. [9]
• Currency. RE/MAX Canada points out that a weaker Canadian dollar means you need more Canadian dollars to cover a US dollar purchase price, and suggests looking at ways to lock in an exchange rate through a foreign exchange service or a cross-border financial institution. [8]
• Reporting in Canada. The Canada Revenue Agency says Canadian resident individuals who, at any time in the year, own specified foreign property costing more than $100,000 must file Form T1135. The CRA's list of property that is not specified foreign property includes personal-use property and property used exclusively in an active business. Whether your Big Island unit counts depends on how you use it, which is a question for a cross-border tax professional. [10]
• Rental income and sale. RE/MAX Canada notes that you may need to report rental income on both Canadian and US tax returns, and could face capital gains tax on a sale. [8] Please get cross-border tax advice before you buy, not after.

Hawaii costs to budget for

HOA or maintenance fees

Condos charge monthly association fees, and the amount varies by building and by what the fee covers. Look at the fee in the listing, and ask for the association's budget and reserve information before you offer.

Property tax

Real property tax in the County of Hawaii is handled by the county, not the state. The county's Real Property Tax Division says it assesses all real property on a uniform and equitable basis at fair market value and collects the taxes imposed by Chapter 19 of the Hawaii County Code. It has an office in Kailua-Kona at 808-323-4880. [11] Tell me which property you are considering and I can help you find its current tax information.

If you plan short-term rentals

• Check the rules for the specific property first. Hawaii County's Planning Department regulates short-term vacation rentals under Bill 108 (Ordinance 2018-114), which it says defines where the use will be allowed. Its page also describes a Nonconforming Use Certificate for certain existing rentals, which must be renewed every year. [12] Never assume a unit can be rented short term. Confirm it before you make an offer.
• Transient accommodations tax (TAT). The Hawaii Department of Taxation (DoTax) describes a transient accommodation as a rental of less than 180 consecutive days to a transient. [13] DoTax announced that Act 96 raised the TAT from 10.25% to 11.00% effective January 1, 2026. [14] DoTax's TAT return instructions say the same. [15]
• County TAT. A DoTax publication says each county may establish its own transient accommodations tax not to exceed 3% by ordinance. [17] I have not confirmed what applies in Hawaii County, so ask your tax professional or DoTax.
• General excise tax (GET). DoTax's GET page lists a 4.5% rate for most activities, including renting real property, and states that this rate includes a 0.5% county surcharge. [16] The page also says businesses engaging in business activities in Hawaii must register for a GET license.
• Registration. DoTax's TAT guidance says operators register using Form BB-1, which covers both GET and TAT. [13]
• Using a property manager. DoTax says persons who collect rent for owners of transient accommodations must make filings on Form RCA-1, and that each owner must have their own GET number and, if applicable, their own TAT number. [18]

Rates and rules in this area have been changing, so treat the figures above as a snapshot and check DoTax for the current version. Items I did not cover, such as homeowner's insurance, utilities and closing costs, also belong in your budget. Ask your lender and insurance agent for actual quotes.

Selling later: HARPTA and FIRPTA withholding

This part is easy to miss when you are buying, but it affects what you receive at closing when you eventually sell. Two separate withholding rules can apply to sales by out-of-state or foreign owners. Depending on your situation, one or both could apply, and a tax professional can tell you which.

HARPTA (Hawaii)

• DoTax's HARPTA guide says the buyer is required to withhold 7.25% of the amount realized on the sale of Hawaii real property by a nonresident and pay it to the Department. [19] The Form N-288 instructions (rev. 2024) say the same: "Generally, you must withhold 7.25% of the amount realized." [20]
• The form instructions define a nonresident person as every person other than a resident person. [20] That is about Hawaii residency, so it is not limited to foreign citizens. Ask your tax professional how you would be treated.
• Withholding is not required if the seller gives the buyer Form N-289. DoTax lists several grounds, including that the seller is a Hawaii resident, or that the property was the seller's principal residence and the amount realized is $300,000 or less. [19]
• The form instructions say DoTax may issue a withholding certificate (Form N-288B) if the seller will not realize any gain or there will be insufficient proceeds. [20]
• Payment is due by the 20th day after the date of transfer. [20]

FIRPTA (federal)

• The IRS says the rate of withholding under FIRPTA generally is 15%, and that in most cases the buyer is the withholding agent. [21]
• The IRS describes an exception where the amount realized is $300,000 or less and the buyer will use the property as a residence. It also describes Form 8288-B, which a seller can use to request a certificate for reduced or no withholding. [21]
• FIRPTA is aimed at sales by foreign persons, so Canadian owners especially should ask a cross-border tax professional how it applies to them.

The practical takeaway: when you sell, a portion of your proceeds may be held back at closing until the tax is sorted out, so plan your cash flow and talk to your tax professional well before you list.

Next steps

1. Talk to a licensed loan officer about your plan for the property (personal use, rental, or both) and get Loan Estimates to compare.
2. Talk to a tax professional who handles cross-border or multi-state situations, especially if you are Canadian or plan to rent short term.
3. Send me the buildings you are considering, and I will help you check the association documents and rental rules before you offer.

More reading on this site: my buyer guides, Big Island condo buying basics, and the investor resources.

Contact Jeff Gaughan

Jeff Gaughan, REALTOR (RS-81116), eXp Realty, Kona Homes and Condos. Phone: 808-491-8115.

Sources

All sources were read in October 2026. Where a source has a date, it is shown.

1. Fannie Mae Selling Guide, B2-1.1-01 Occupancy Types: selling-guide.fanniemae.com/sel/b2-1.1-01/occupancy-types
2. Fannie Mae, Eligibility Matrix (Desktop Underwriter), version 12.1, August 5, 2026: singlefamily.fanniemae.com/media/20786/display
3. Fannie Mae Selling Guide, B4-2.1-03 Ineligible Projects (08/05/2026): selling-guide.fanniemae.com/sel/b4-2.1-03/ineligible-projects
4. Fannie Mae Selling Guide, B4-2.1-01 General Information on Project Standards (08/05/2026): selling-guide.fanniemae.com/sel/b4-2.1-01/general-information-project-standards
5. Bankrate, "Freddie, Fannie condo mortgage rules roil market" (August 2023): bankrate.com/mortgages/freddie-fannie-condo-mortgage-rules-roil-market
6. NerdWallet, "What's a DSCR Loan and Should You Get One?" (updated July 17, 2026): nerdwallet.com/business/loans/learn/dscr-loan
7. Consumer Financial Protection Bureau, "Understand the different kinds of loans available" (last modified February 18, 2026): consumerfinance.gov/owning-a-home/loan-options/
8. RE/MAX Canada, "Buying a vacation home in the US" (January 3, 2025; modified February 6, 2026): blog.remax.ca/buying-a-vacation-home-in-the-us/
9. Canadian Mortgage Professional, "Here's what's holding Canadians back from buying US property" (May 20, 2026): mpamag.com/ca/mortgage-industry/industry-trends/heres-whats-holding-canadians-back-from-buying-us-property/576018
10. Canada Revenue Agency, Foreign Income Verification Statement (Form T1135): canada.ca/cra-foreign-income-verification
11. County of Hawaii, Real Property Tax Division: hawaiicounty.gov/departments/finance/real-property-tax
12. County of Hawaii Planning Department, Short-Term Vacation Rentals: planning.hawaiicounty.gov/resources/short-term-vacation-rentals
13. Hawaii Department of Taxation, Tax Facts 96-2, Transient Accommodations Tax (revised May 2025): files.hawaii.gov/tax/legal/taxfacts/tf2025-96-2.pdf
14. Hawaii Department of Taxation, Announcement 2025-03, Transient Accommodations Tax Law Changes from 2025: files.hawaii.gov/tax/news/announce/ann25-03.pdf
15. Hawaii Department of Taxation, TAT instructions on 2025 changes (Act 96): files.hawaii.gov/tax/forms/current/ta2ins.pdf
16. Hawaii Department of Taxation, General Excise Tax information: tax.hawaii.gov/get
17. Hawaii Department of Taxation, 2025 tax type and rate outline: files.hawaii.gov/tax/news/pubs/25outline.pdf
18. Hawaii Department of Taxation, Rental Collection Agreement information: tax.hawaii.gov/rca/
19. Hawaii Department of Taxation, Tax Facts 2010-1, Understanding HARPTA (revised April 2021): files.hawaii.gov/tax/legal/taxfacts/tf2010-1.pdf
20. Hawaii Department of Taxation, Form N-288 instructions (rev. 2024): files.hawaii.gov/tax/forms/2024/n288_i.pdf
21. Internal Revenue Service, Withholding of tax on dispositions of US real property interests (FIRPTA): irs.gov/individuals/international-taxpayers/firpta-withholding