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

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.

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.

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.

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:

• Conventional home loans: 6.3%
• VA loans: 6.4%
• USDA loans: 3.3%
• FHA loans: 7.0%

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

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.

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.

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.

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).

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.

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

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.

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.

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

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.

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.

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.

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.

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.