This leads to a lot of misunderstanding between home buyers, realtors, escrow companies, and mortgage lenders (especially those that primarily do business on the mainland).  

In almost all other US States, the official closing/settlement happens the same day the mortgage loan proceeds are funded into escrow.  As a result, many lenders use the terms closing and funding synonymously.

This leads to a bit of uncertainty when the transaction is taking in place in Hawaii where the actual closing date is 2 full business days after the loan funding date.  Why is Hawaii unique in this regard?

The reason for the 2 business day closing difference is Hawaii’s “Good Funds” Law.  Escrow companies in Hawaii are prohibited from disbursing closing funds “until final settlement of the item (good funds) has been received by the financial institution to which the item (deposit) has been submitted for collection.” HRS § 449-16. 

The Hawaii Association of Realtors standard form purchase contract provides that “closing shall be the date when all appropriate conveyance documents are recorded” at the State Bureau of Conveyances. Purchase Contract § F-1.  

If the closing date falls on the weekend, State or Federal holiday, or any other day the State Bureau of Conveyances is closed, “closing will be on the next day when documents can be recorded.” Purchase Contract § F-2.

This means ALL funds necessary to close the transaction, to include your closing funds (cash to close) and mortgage loan proceeds, must be received and verified as “good funds” by escrow 2 business days prior to recordation of the documents at the State of Hawaii Bureau of Conveyances.  

Good funds simply mean the funds held at escrow are immediately available for withdrawal and disbursement.  This explains why escrow companies in Hawaii require home buyer closing funds in the form of a Fed funds wire or cashier’s check drawn on a local Hawaii Bank.  

A personal check, electronic (EFT) transfer or bank/cashier’s check drawn on a mainland bank can take up to 7 business days to clear and become “good funds.”

Here are some typical closing timeline examples (assuming there are no holidays, weekend days, or days the Bureau of Conveyances is closed between funding and recording). 

• Friday closing day, then all closing funds and lender loan proceeds, if applicable, must be received and verified in escrow no later than Wednesday.  Most lenders will need 24-48 hours to review signed loan closing documents and order the Fed funds wire of loan proceeds to escrow. Typically, the signing of all closing documents will occur on Monday or Tuesday* at the latest for a closing on Friday.
• Tuesday closing day, then all closing funds and lender loan proceeds, if applicable, must be received and verified in escrow no later than Friday of the previous week.  Most lenders will need the buyer(s) to sign of all closing documents Wednesday or Thursday* of the previous week to make the closing day of Tuesday.

*Signing closing documents assumes it physically happens in Hawaii.  If the home buyer(s) sign documents out of State, signing must occur 5-7 days prior to closing to ensure sufficient time for the original signed documents to be sent to Hawaii for recording.

Keep in mind that you start paying interest on the date your lender funds loan proceeds to escrow.  This is also the date your homeowners and hurricane insurance policy must be effective, not the actual closing date 2 business days later.

Since home buyers start paying interest on the day of loan funding, the majority of purchase closings happen in Hawaii on Wednesday, Thursday, and Friday so that you pay only 2 days upfront interest in advance of taking ownership.  

If closing is on a Monday or Tuesday, then you pay 4 days upfront interest (2 business days for good funds plus Saturday and Sunday), as funding occurs on Thursday for a Monday closing and Friday for a Tuesday closing.

Additionally, Hawaii is 6 hours behind Eastern Standard Time (5 hours behind during the non-Daylight Savings Time as Hawaii does not change time during the year).

The window for lenders to order Fed funds wires usually closes at around 10:30am Hawaii Time.  This is why closing document signing typically occurs 1-2 days prior to loan funding.  

The only way to sign and have loan funds sent to escrow the same day is to sign all closing documents early enough in the morning for the lender to receive the fully executed and notarized docs and order the wire prior to the 10:30am cutoff time.

Most real estate agents and lenders in Hawaii will explain all these closing timelines so you completely understand what is expected for signing, funding, and recording (official closing) dates.  

If you choose to work with a mainland lender for your Hawaii purchase, you will need to explain this to your lender in such a way that they completely understand your closing timeline to prevent any delay in your purchase closing. 

Remember, for the mortgage lender, the “closing” date is the day they fund loan proceeds to escrow.  In Hawaii, the “closing” date, the day you receive keys to your new home and become the official owner, is actually 2 business days later.  

It is in your best interest to ensure your lender completely understands this so you can both plan your loan approval, closing document signing and loan funding according to Hawaii’s required closing timeline.