How to Buy a House in Rhode Island: A Homebuyer’s Guide

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Edited byScott Strandberg

Updated: March 3, 2023

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If you intend to buy a home in Rhode Island, be forewarned that it is one of the most expensive states to purchase a home.

The median home price in Rhode Island is around $437K. This is around an 11% increase over the previous year and reflects the steady recent growth in prices. Although this annual growth rate is smaller than the national rate of 13.5%, the median price of homes in Rhode Island is much higher than the average across the country, which is $358K.

Buying a home can be a complicated process, especially if you’re a first-timer. This is why MoneyGeek created this guide to help you navigate the ins and outs of the homebuying journey, including applying for a loan, sealing the deal and finding ways to avoid getting into unnecessary and potentially insurmountable debt.

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Choose an Ideal Location

The location of a property should be at the top of your list of factors to consider when purchasing a home. Your chosen location has a significant effect on the cost of your home and the monthly mortgage payments you’ll need to pay, as well as the overall cost of living.

But in addition to financial considerations, your home’s location also has an effect on other practical things, such as your access to amenities like hospitals, schools, recreational activities and neighborhood culture.

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WORK WITH A REAL ESTATE AGENT

Having a professional by your side can help you deal with the complexities of the housing market and keep you from being overwhelmed by the available choices. Just tell your agent your budget and preferred location and let them do the legwork for you — from narrowing down your choices based on your specifications to scheduling tours (in person or virtually), negotiating with the seller and closing the deal on your behalf.

MoneyGeek suggests the following when looking for a real estate agent:

  • Do your research and compare agents.
  • Ask for referrals.
  • Check the agent’s license, training and experience.
  • Make sure that the agent has in-depth knowledge of the local housing market.
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CALCULATE THE COST OF LIVING

Rhode Island is one of the most expensive states in the country to live in. That said, the cost of living in the state can still vary greatly depending on which city or county your home is located in.

If you’re searching for the cheapest places to buy a house in Rhode Island, you should consider costs such as:

  • Food and groceries
  • Utilities (water, electricity)
  • Income taxes
  • Health care
  • Child care and education
  • Property taxes
  • Transportation
  • Entertainment and leisure
  • Medical insurance premiums
  • Car insurance premiums

Use MoneyGeek’s cost of living calculator to find out how average monthly expenses for a typical family vary in different Rhode Island cities.

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CONSIDER AFFORDABLE NEIGHBORHOODS

Rhode Island is rated as one of the best states to live in the U.S. But this comes at a cost since it also ranks as one of the most expensive places to live in the country.

That said, you can still save a lot by buying a property in a more affordable area, such as a suburb or rural area. When it comes to Rhode Island’s cities, the cheapest ones in which to buy a home are Warwick and West Warwick.

Living in these areas may be cheaper overall, but be prepared for some trade-offs, like having potentially limited access to amenities such as schools, hospitals and malls. In contrast, more centrally located areas in cities are typically more expensive, but you’ll have convenient access to virtually all amenities.

Calculate Mortgage Rates

Depending on your credit profile and personal circumstances, you might qualify for several different mortgage loan options. Be aware that these have varying rates that can affect the size of your monthly payments.

In evaluating the types of mortgages and rates that you’re eligible for, your lender will typically look at your income, credit score and debt-to-income ratio. Make sure to get the best possible rates by shopping around and comparing lenders.

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SEE YOUR MORTGAGE OPTIONS

Mortgage rates tend to vary widely across lenders and loan types. Note that eligibility for some loans will be limited to candidates who meet specific requirements. For example, VA loans are only available to military members.

In Rhode Island, the average mortgage interest rates are:

These average rates can still vary based on a few factors, including which lender you choose and the exact location of your selected property.

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USE A MORTGAGE CALCULATOR

Don’t run the risk of missing payments or even defaulting on your mortgage loan. Make sure you understand if you can afford the monthly payments beforehand.

Depending on your personal and credit profile, you may qualify for several mortgage options. You may be eligible for a government-backed mortgage, a conventional home loan or both. Check the options that are available to you and compare lenders’ APRs so you can get the lowest possible rates and the best terms.

Use MoneyGeek’s mortgage calculator for a quick and accurate estimate of your monthly payments. We also have an FHA vs. conventional loan calculator to help you compare rates.

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KNOW YOUR QUALIFICATIONS

Lenders will generally base the loan amount, APRs and required down payment on your creditworthiness. Here are a few factors that lenders will consider in mortgage borrowers:

  • Credit score: Those with good credit typically receive better rates and terms and higher loan amounts.
  • Credit history: Lenders will check your credit history for missed payments and loan defaults by making a hard inquiry.
  • Income: There may be income requirements that you must meet for certain mortgage loan types.
  • Debt-to-income ratio (DTI): This tells the lender if you can still safely afford another loan on top of your current financial obligations.
  • Down payment: You’ll typically get lower APRs and monthly installments by putting in a larger down payment.

Prepare Down Payment Requirements

The market standard is to put a 20% down payment on a house. But not everyone can afford this huge upfront cost. Over the years, this standard amount has become less of a requirement and more of an ideal, especially if you’re willing to buy private mortgage insurance (PMI).

Today, down payment requirements may vary from as low as 3.5% to around 20%, depending on the type of mortgage. There are also federal housing loans that don’t require any upfront payment, such as USDA and VA home loans.

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DETERMINE DOWN PAYMENT REQUIREMENTS

The biggest upfront cost that you’ll face as a homebuyer is a down payment. This figure may vary considerably, depending on the mortgage type and the lender.

Most lenders will look at your credit score when determining your required down payment. The most important thing to remember is that the size of your down payment will affect your mortgage rates and monthly amortization. If you can afford it, consider paying a larger upfront payment to get lower interest rates and installments.

Also, explore government-backed zero-down-payment options. For instance, a USDA home loan will let you purchase a home in an eligible rural area with a total population of under 35,000 people without a down payment.

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CALCULATE MORTGAGE INSURANCE

Most conventional home loans require mortgage insurance if you cannot make a 20% down payment. Private mortgage insurance (PMI) serves as a lender’s protection against the risk of having a borrower who defaults on the loan. But note that not all mortgages require this.

  • Conventional loan: Requires PMI if a homebuyer puts in a down payment of less than 20%.
  • VA loan: No PMI required.
  • USDA loan: No PMI required, but you need to pay a monthly guarantee fee.
  • FHA loan: No PMI required, but you will pay a mortgage insurance premium (MIP).
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DOWN PAYMENT ASSISTANCE PROGRAMS

There are several first-time homebuyer financial assistance programs in Rhode Island that you can take advantage of. To qualify, you must not have purchased a home in the past three consecutive years.

Some of the down payment assistance programs in Rhode Island are:

  • The Housing Network of Rhode Island: Offers up to $20,000 in down payment and closing cost assistance to income-eligible homeowners.
  • RIHousing First-Time Homebuyer Loan: Finances 100% of your home for up to a maximum purchase price of $546,752 when combined with down payment assistance.
  • RIHousing Extra Assistance Program: Provides down payment assistance of up to 6% of the home’s purchase price or $15,000, whichever is lower.

Get Pre-Approved for a Mortgage

In Rhode Island, it’s important to get pre-approved for a mortgage, and some sellers may even require it.

A mortgage pre-approval is different from a prequalification. A pre-approval shows that a lender has committed to giving you a mortgage at a specified loan amount and that they have done the research to ensure you can afford it. Meanwhile, a prequalification only serves to prove that you meet the eligibility requirements for a mortgage loan, but the lender hasn’t committed to giving you a loan yet.

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GATHER NECESSARY DOCUMENTS

There are several documents that you need to provide to your lender when applying for a mortgage. These will serve to verify your personal and financial information, such as your income, debt-to-income ratio, credit score and employment history.

You may also be asked to submit additional documents depending on your situation and the type of mortgage that you’re applying for.

Make sure to prepare the following necessary documents to facilitate the processing of your mortgage application:

  • Social Security number
  • Driver's license
  • Bank account statements
  • Current pay stubs
  • Three years of tax returns with W-2s
  • List of credit accounts and existing debts
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TIME YOUR PRE-APPROVAL

In Rhode Island, homebuyers are not legally required to get mortgage pre-approval when buying a home, but it’s always recommended. This process can take up to 10 days, depending on the lender.

The mortgage pre-approval letter will state the loan amount that you are qualified to borrow. Typically, this document is only valid for up to 90 days, which is why it’s important to be completely sure about your decision to buy a home and take on this financial obligation before applying for mortgage pre-approval.

Keep in mind that you’ll need to reapply for another mortgage pre-approval once your letter’s validity period has lapsed.

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RECEIVE PRE-APPROVAL LETTER

Your lender will review the submitted documents and conduct a credit check once it has received your mortgage application. If you qualify based on the eligibility requirements, your lender will issue a pre-approval letter stating its commitment to grant you a loan at a specified amount.

Getting pre-approval letters from multiple lenders will let you compare rates. But keep in mind that the validity term of these letters varies per lender. Generally, they only last for 30 to 90 days. However, this strategy might not work for everyone since the hard credit inquiries that lenders typically perform can cause a significant dip in your credit score.

Conduct a Home Inspection

A home inspection is a must before buying any property. Having a thorough evaluation done by a professional can help detect any issues that may require a substantial amount of repairs and expenses, such as structural damages or other safety issues.

If your licensed inspector has found a few issues in the home that you’re planning to purchase, you can use this to negotiate a lower price.

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CONTACT A LICENSED INSPECTOR

A home inspection costs around $300 to $450. Your home inspector will check whether the home that you’re planning to purchase is in good condition. This is why it is important that you hire a professional who is licensed in Rhode Island.

By working with a licensed professional, you’ll receive reliable and accurate information about the home’s overall state that you can use to inform your purchase. This will spare you from facing unexpected and costly repairs.

Your home inspector will provide you with a report of any damages, construction flaws and safety issues that you need to be aware of. These include issues with the home’s:

  • Foundation
  • Electrical system
  • Plumbing
  • HVAC systems
  • Roofing
  • Doors and windows
  • Appliances
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FOLLOW RHODE ISLAND-SPECIFIC INSPECTIONS

Home sellers are required by Rhode Island state law to disclose any faults and issues in their property to buyers.

That said, we still advise you to hire a professional home inspector who will give you a full and comprehensive assessment of all areas in the home. Use this report to decide whether to move forward with purchasing the home. This critical step shouldn’t be overlooked since it can save you from the money trap of shouldering costly repairs for structural flaws and safety hazards.

Keep in mind that certain inspection laws are specific to Rhode Island cities or counties, which is why it’s best to transact with licensed home inspectors and real estate agents that are knowledgeable about local regulations.

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GO THROUGH APPRAISAL

Your mortgage lender will typically ask a professional appraiser to perform an appraisal to assess the property’s value. This ensures that the home’s listing price is not vastly different from its actual value. Most lenders find that this prevents homebuyers from overborrowing, which increases the risk of a borrower defaulting on the loan.

On top of inspecting the home’s physical features, the appraisal will also account for current trends in the real estate market. This means that the value of the home will be influenced by current mortgage rates and the value of similar properties in the area.

Close Your Mortgage Loan

You’ll receive a loan offer from your mortgage lender once the home inspection and appraisal have shown satisfactory results. Carefully review this offer before proceeding to close the mortgage loan.

This process will also require you to pay closing costs, but thankfully there are financial assistance programs in Rhode Island that can help cover the expense.

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SIGN ALL DOCUMENTS

Review the terms and conditions of the mortgage loan to ensure they are acceptable to you. Make sure to carefully review the following documents before signing:

  • Property deed: This details necessary information about the property and describes the ownership transfer to the buyer.
  • Mortgage note: This states the loan amount, interest rate and repayment terms. It also legally binds the borrower to pay the monthly amortization.
  • Loan application: You’ll have to confirm that your personal and financial details in the final mortgage application are correct and current.
  • Closing disclosure: Your lender will provide this at least three days before closing your mortgage in accordance with federal law. This document will state the terms of your mortgage.
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PAY CLOSING COSTS

Another significant expense that you must prepare for is closing costs. These typically range from 2% to 5% of the home’s purchase price. But note that rates will tend to vary depending on your lender, the location of the property and other factors.

Closing costs include the following:

  • Lender fees: You will need to cover the lender’s fees, including appraisal and home inspection expenses.
  • Origination fee: Your lender may charge an origination fee for setting up and processing your mortgage. But not all lenders charge this fee.
  • Escrow: This includes payments for mortgage insurance, property tax, homeowners insurance and any annual fees.
  • Third-party fees: Some third-party costs you may need to pay include legal fees and specialty home inspections.
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COMPLETE YOUR HOME PURCHASE

MoneyGeek created this step-by-step guide to help you successfully navigate the journey toward homeownership. Our guide features detailed information about the essential steps from selecting the best place to buy a home in Rhode Island all the way through to finalizing your home purchase. But don’t forget to also consult with your realtor for additional advice, especially regarding local regulations.

A mortgage requires regular monthly payments. You might want to consider signing up for automatic payments to keep tabs on due dates. This will help you avoid unnecessary fees for missed payments which can add up to a huge sum if you’re not careful. Also, it’s a good idea to set aside some money each month for unexpected repairs and upkeep.

Rhode Island Homebuying Details

There are several details unique to Rhode Island that you need to be aware of as a homebuyer.

Rhode Island ranks highly as one of the best states to live in the country, but this comes at a steep cost. The median home prices and cost of living in the state are much higher than the national average, which might be a dealbreaker if you’re focused on cost.

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Even with Rhode Island’s hefty home prices and a high overall cost of living, there are municipalities that have cheaper house prices. For instance, of Rhode Island’s 39 municipalities, six meet the 10% requirement for providing affordable housing. These are Central Falls, Burrillville, New Shoreham, Providence, Woonsocket and Newport.

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You might also want to look into rural areas and suburbs. Although these areas are generally more affordable to live in, you must be prepared to have limited access to amenities like schools, hospitals, malls and recreational centers.

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Don’t forget to check if you qualify for down payment assistance programs in the state, including those from The Housing Network of Rhode Island and RIHousing, which can help cover both down payment and closing costs.

Frequently Asked Questions About Buying a Home in Rhode Island

MoneyGeek outlines the important information about buying a home in Rhode Island by addressing some of the commonly asked questions on the topic.

You must ask yourself these questions:

  • Where is the ideal location of your home in Rhode Island?
  • What mortgage loan type and rates will you qualify for based on your personal and financial profile?
  • How much can you afford to put in as a down payment?

Rhode Island ranks highly among the best states to live in, but be prepared for the higher-than-average house prices and cost of living.

Being one of the more expensive states in which to buy a home, the median home prices in Rhode Island have grown steadily over recent years. In the past year alone, there was an 11.1% increase in average home prices across the state. As a homeowner, you’ll stand to gain from this increase in property value if this trend continues.

This mainly depends on the requirements set by the lender, as well as the price of the Rhode Island home that you intend to buy. Some lenders do not have an income requirement, but others will look at your income and credit profile to evaluate your creditworthiness. Your income must be deemed sufficient to meet the monthly mortgage payments.

Rhode Island has an average property tax rate of 1.53%. This puts it among the 10 states in the country that charge the highest property tax rates.

West Warwick and Warwick are the cheapest cities in which to buy a home in Rhode Island. Aside from these options, of the state’s 39 municipalities, only six meet the 10% requirement of providing affordable housing. These are Central Falls, Burrillville, New Shoreham, Providence, Woonsocket and Newport.

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