Rhode Island housing professionals urge first-time buyers to proceed with care and caution when moving through the rigorous paces of buying a house. It's not just about finding an affordable dwelling to call home. It's also about making sure you are financially prepared to qualify for a loan and capable of paying the monthly mortgage. This guide is designed to provide some relief as you make the journey, offering important information on how to find housing counselors and state financial assistance, along with other critical advice on what's required to qualify for the best possible mortgage rate in Rhode Island.
Mortgage Rates in Rhode Island
Rhode Island mortgage rates are stable and driven by the macroeconomic environment, according to Rhode Island Housing, the public agency that offers assistance to first time homebuyers. "There has not been as much growth, GPD-wise, or in the global economy and that helps keep rates low," said Peter Pagonis, Director of Homeownership at the housing authority. "Every time we think they are going to go up, they go down."
Although Rhode Island's recovery from the recession has been one of the slowest in the nation, home sales have been brisk, especially for single-family dwellings for first-time homebuyers. The low number of affordable homes for sale in Rhode Island, though, restricts buyers and creates stiff competition.
Mortgage rates for loans and financial assistance tailored to first-time homebuyers on average, are steady and hovering between about 3.3 percent to 3.5 percent for 30-year state and federal loan products. Some local Rhode Island lenders are also matching the 3.5 percent mortgage rates offered for FHA loans, to remain competitive, according to state realtors.
First-Timer? There's Help for You in Rhode Island
Rhode Island offers a larger-than-usual suite of low-interest loan products for first-time homebuyers, as well as products for current homeowners who are interested in selling an existing starter home to buy-up, or for residents interested in refinancing an existing mortgage to take advantage of lower rates than they have now. While mortgage rates are stable, making conditions appealing for potential buyers, Rhode Island is still a seller's market with limited inventory and a slow but steady uptick in home prices.
Single-family home sales rose by nearly 15 percent in the second quarter of 2016 and the median sales price is up nearly 7 percent to $240,000 from the same period last year but remains below the third-quarter 2006 sales price of $286,500. "Home prices are increasing, which presents challenges for first-time homebuyers who may get priced out of the market," said Rhode Island Housings, Director of Home Ownership, Peter Pagonis.
But there's help. Rhode Island's FirstHomes 100 loan program offers a fixed-rate, 30-year mortgage with options for 100 percent financing, without a required down payment and no mortgage insurance for qualified buyers. The LastingHomes program helps buyers finance various expenses, from necessary home improvements to paying off existing high-interest loans. The FirstHomes Tax Credit, applied to federal tax liabilities, can help qualified buyers save up to $2,000 a year for the life of the mortgage. The Ocean State Grad Grant program offers up to $7,000 to cover down payment costs for those who have graduated within the last three years from an accredited post-secondary college or university in the U.S. with a bachelor's, master's or doctorate degree. Although Rhode Island has no restrictions on the price of a home, other limits apply. For most products, the buyers total annual household income must be less than $89,280 for a one- to two-person household and no more than $104,160 for households of three or more. Check out our first-time buyer's guide for more details on the home-buying process.
Financial Assistance for First-Timers Hoping to Buy in Rhode Island
Rhode Island can help cover closing costs, down payments and even assist if the home you covet needs repairs.
To Get Financial Help in Rhode Island You Must See a Housing Counselor
Understanding Home Affordability in Rhode Island
Demand from a rise in the number of households from 2015 through 2025 is expected to outpace the supply of affordable homes in Rhode Island, which will continue to burden potential homebuyers in all income categories, according to an April 2016 report by Housing Works Rhode Island, a research organization at Roger Williams University in Bristol, RI. That means houses appealing to first-time buyers may be limited and competition may be stiff, while higher-end or luxury homes may be more abundant but out of reach financially. "Housing is considered affordable if a household pays no more than 30 percent of its annual gross income on housing related costs," said authors of the report on Rhode Island housing conditions. The report noted that between 2008 and 2012 at the height of the recession, "40 percent of all households [in Rhode Island] were cost burdened."
Rising home prices, followed by steep drops in Rhode Island home values and escalating foreclosures, along with job losses and shrinking incomes drove conditions and would contribute to home affordability issues for residents over the next decade, the report said, despite predictions of an eventual recovery. With little or no new construction and Rhode Island's status as having one of the oldest housing stocks in the country (rated No. 4), first-time homebuyers may need to take extra care during the pre-sale phase, when it's time to conduct structural surveys and toxicity inspections designed to evaluate the home's suitability for move in.
Rhode Island Mortgage Rates and Prices Affect Monthly Payments
|Metro Area||Estimated Monthly Mortgage Payment*||Q1 2016 (Change from Previous Year)||2015 Median Home Price||2014||2013|
|Providence-New Bedford-Fall River||$1,156||$245,900 (+5.40%)||$248,800||$238,800||$230,800|
Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today's rates.
FHA and Other Borrowing Limits Apply in Rhode Island
Rhode Island Housing offers all the current loan products insured by the Federal Housing Administration (FHA), Veterans Administration (VA) and Rural Development (RD) agency. The federal government and fluctuations on Wall Street typically determine loan limits for conventional and FHA loans. FHA, VA and RD purchase mortgages, along with the FHA 203K Purchase Rehab Mortgages, currently have a rate of 3.25 percent. Conventional purchase mortgages either with 20 percent down or, if less, with PMI are 3.875 percent and a conventional loan purchase without mortgage insurance stands at 4.625 percent. Income limits do not vary from other RI loan products, which may be combined with federal loans, and range from $89,280 for a 1 or 2-person household, to $104,160 for a household with 3 or more individuals. Here are more details about FHA and conventional loan limits in Rhode Island.
Buying a Home in Rhode Island: Experts Weigh In
Peter Pagonisis director of the homeownership division for Rhode Island Housing.
Arthur Yatskois president of the Rhode Island Association of Realtors and owner of the Salisbury Agency.
What was the market like before the crash and now?
Rhode Island was hard hit by the recession. And because home prices were rapidly increasing before [the crash], home prices dropped quickly and we saw negative equity. Foreclosures have improved recently although there is still a need to help homeowners facing monthly mortgage pressure. Demand from new homebuyers is up (this year) and the economy is improving, slowly. Unemployment is down and with mortgage rates still attractive, we see borrowers trying to take advantage of the opportunity. Home prices are increasing statewide. Loan amounts are lower due to the still depressed economy.
Home prices were high or overinflated before [the crash]. We had a lot of foreclosures and unemployment. Right now, home values are about 80% of what they were before the crash. Mortgage rates are low and stable, and lower than Connecticut and Massachusetts. Lending has loosened and a growing number of people are credit worthy again. Our home prices have been creeping up. Now is a good time to buy whether you are looking for your first home or looking to move up from the home you already own. It's all about the low and stable interest rates because a 1 percent change in rates has a more dramatic effect on your mortgage than an increase in price of your dream home.
What is the status of housing inventory?
There is not a lot of new construction. Inventory is not as tight as it was, but there is considerable competition for homes on the market. Demand still outpaces supply and houses do not last long. Rhode Island has a very old housing stock. Some of the homes for sale are in very nice neighborhoods, but they need work.
There are not a lot of new housing starts in Rhode Island, and the newer builds tend to be expensive. A lot of the starter homes are well kept, but they might be old homes. First time buyers had been driving the market, but a dwindling supply of homes for sale and tightening inventory in the lower category may be starting to impact sales. As the price continues to creep up, we are seeing more inventory become available at the higher end but first time buyers are probably priced out of that portion of the market.
What are the biggest barriers for first-time homebuyers?
The biggest barrier is coming up with the necessary funds for the down payment. A lot of buyers are saddled with student loan debt, and they have trouble saving for the down. That debt may affect the principle payment and the ability of the buyer to qualify because lenders look closely at the debt to income ratio, which also can affect the size of the mortgage and terms.
People think they can't buy because of all the horror stories about getting a mortgage and saving for the down payment and closing costs. People don't know that you don't have to have the down or the closing in the bank because our Rhode Island housing organizations can help with that and even lenders are now offering rates of 3.5% down to compete with FHA. If you do the math and add up the cost of rent over time and the cost of the closing and mortgage over time, you may find it's better to buy.
Rhode Island Closing Costs
Closing costs at the very least include the average origination fee imposed by lenders and the average, base third-party fee. In Rhode Island, the average closing costs for a home with a purchase price of $200,000 will total just under $2,000, according to this Bankrate survey. But local authorities estimate closing costs at $3,000, with added fees. The state agency offers closing cost assistance of up to $6,500 for a single unit and up to $7,500 for multi-unit homes. Rhode Island home mortgages are exempt from recording fees, a state housing official said, but other costs may be incurred including title insurance, appraisal fees and survey costs.
Cities in Rhode Island may also offer closing cost assistance. For example, the City of Cranston offers grants of up to $3,000 for closing costs to new city residents, funded by a Community Development Block Grant awarded through HUD. The cities of East Providence, Pawtucket, Providence, Warwick and Woonsocket also operate their own programs independent of the State, which separately manages the block grant program for 33 other Rhode Island cities that do not receive direct allotments from HUD.
Average Closing Costs in Rhode Island
Source: Bankrate's 2015 survey of closing costs.
Things to Consider When Refinancing Your Rhode Island Home
Rhode Island refinancing appears to be on the rise as an option to lower monthly mortgage costs, a tool increasingly used in addition to the reverse mortgage. "Clients call to explore refinancing and ask: should I refinance while mortgage rates are still low?" said Arthur Yatsko, President of the Rhode Island Association of Realtors. "My response is a series of questions: Is your house still a good fit? Do you plan to stay in the area? Is the home still in a convenient location?"
Refinancing isn't right for everyone but for homeowners who bought a home when interest rates were high, now may be a good to refinance because, by all accounts, rates can't go any lower. It's worth consideration for homeowners committed to living in Rhode Island, who have good credit and limited student debt and who would receive significant lower monthly payments.
Rhode Island Resources for First-Time Homebuyers
This state entity provides financial assistance to first time homebuyers and other homeowners seeking to move up or refinance or rehabilitate a home.
Offers funding resources and free, HUD-certified counseling, especially to those in danger of foreclosure.
Award program provided by the U.S. Department of Treasury to help certain states like Rhode Island that were hit hard by the Great Recession. Since 2010, the HHFRI has received a total of nearly $115 million, which has been used to help more than 5,300 Rhode Island homeowners.
Trade group for realtors to access MLS listings, education and mediation over complaints.
State association of nonprofit community development corporations offering homeownership classes and assisting builders and homeowners create affordable housing.
A public policy research group based at Roger Williams University in Bristol, RI that maintains and develops a large cache of detailed reports, references and resources for homebuyers, homeowners and builders.