Rhode Island has a surprisingly affordable real estate market. Boasting a higher-than-average median income, the home-price-to-income ratio is relatively low, making Rhode Island a great place to buy a house.

However, if you’re a first-time home buyer, or if you’re new to the Rhode Island real estate market, it’s understandable to have reservations about the home buying process.

That’s where car insurance and broker expert

Jerry

can help. In this homebuyer’s guide, we’ll run through the steps to buying a house that every prospective Rhode Island homeowner needs to know.

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Get a handle on your finances

The most critical first step in buying a house in Rhode Island is evaluating your current financial situation. Before you can put an offer on any house, you need to know your current income, credit score, debt-to-income (DTI) ratio, as well as all the payments and fees involved in buying a house. With that information, you can begin your house hunt with confidence.

So before you open Zillow or Trulia, first sit down with a calculator, bank statements, and other financial records to calculate what kind of house you can afford in Rhode Island.

Check your credit score

Your credit score is often the most important number associated with the homebuying process. Check your credit score before you do anything else. You can request one report a year for free from

USA.gov

, or go through any number of free credit report sites. Soft credit checks (like these) do not impact your credit score.

Generally speaking, your credit score should be 620 or higher to qualify to buy a house in Rhode Island, especially if you plan to take out a conventional mortgage loan.

If your credit score is below 620, consider these options.

Build your credit to help qualify for a better mortgage. This is a wise option if you’re also saving up for a down payment. If this isn’t possible, you can still qualify for a mortgage with a lower credit score.

The Federal Housing Administration (FHA) offers mortgages for homebuyers with credit scores as low as 523

The Veterans Administration (VA) provides loans if your credit score is at least 500, as long as you are a veteran or are actively serving in the U.S. armed forces.

Calculate your debt-to-income (DTI) ratio

Your debt-to-income ratio, or DTI, is another important factor to consider before taking on a home loan. To calculate your DTI, add your monthly payments, then divide them by your pre-tax income. Payments that count towards your DTI include:

Rent or house payments

Car payments

Credit card payments

Student loan payments

Alimony or child support

Personal loans

Other recurring payments

You want a DTI at or below 36%, especially if you want a conventional mortgage. If your DTI is greater than 50%, you could find it difficult to purchase a house in Rhode Island.

Determine your down payment

Your down payment plays a key role in determining what kind of house you can afford. The greater the down payment, the less money you need to borrow.

Down payment requirements depend in part on what kind of mortgage you expect to get. A conventional mortgage typically requires a down payment of at least 20%. For example, for a $300,000 loan, you would need $60,000 as a 20% down payment.

If you’re not able to make a 20% down payment, a Federal Housing Administration (FHA) loan or Veterans Administration (VA) home loan may provide more affordable options:

FHA loan: A mortgage insured by the Federal Housing Administration for low- and moderate-income homebuyers (especially first-time homeowners)

VA home loan: A mortgage insured by the Veterans Administration for service members, veterans, and eligible surviving spouses

With an FHA mortgage, your down payment could be as low as 3.5% if your credit score is good enough (usually around 580). Those who qualify for a VA loan may be able to make no down payment at all! VA loans also offer competitively low interest rates and lower closing costs.

Plan for closing costs and other fees

You may have heard the term “closing costs” before, but how much should you really plan to pay at closing along with your down payment?

Closing costs generally amount to 2-5% of the home’s total value. According to

Zillow’s Home Value Index,

the average home value in Rhode Island is $405,272. So closing costs could be as much as $11,245!

What does that amount include? Typically, your closing costs cover the following:

Home appraisal (required by most lenders) fee

Credit report fee

Home inspection fee

Mortgage origination fee

Earnest money (i.e., a good-faith deposit that will go towards your down payment)

Mortgage insurance

Property taxes

Homeowners insurance

In Rhode Island, property taxes average about 1.35%, but the exact amount varies by county.

For instance, Kent County property taxes can be as high as 1.42%, while Providence County and Bristol County property tax rates average 1.31%, and 1.23% respectively. Washington County property taxes average 1.1%, while Newport County property taxes are the lowest for the state, at an average of .98%.

But don’t get discouraged yet, even if you’re looking at houses in one of the more expensive counties: Rhode Island Housing (RIHousing) offers programs to assist first-time homebuyers as well as existing homeowners.

Buyers can work with RIHousing directly, or through a participating mortgage lender. The loans can be conventional, FHA, VA, or USDA loans, all with competitive interest rates. Income and loan limits do apply, so reach out to

RIHousing

for more information.

MORE: How to make a counteroffer after a home inspection

Compare homeowners insurance

Homeowners insurance isn’t just part of your closing costs—it’s an ongoing expense you’ll need to maintain long after you close. The average cost of homeowners insurance in the US is $1,393 per year, or $116 per month. In Rhode Island, the cost can be higher, since you may need to buy flood insurance in addition to your regular homeowners policy.

Research your options for homeowners insurance—don’t just buy the first policy you find. Compare rates from at least three different insurance companies to find the lowest cost for your needs (hint: you can usually find the lowest rate from your car insurance company).

Insurance broker super app

Jerry

can make the comparison process easy: just enter your information, sit back, and let Jerry do the work to find you quotes from up to 50 top companies!

MORE: Does home insurance cover flooded basements?

Seek mortgage preapproval

Don’t start looking for houses yet—your next step is to prequalify for a mortgage. This puts you in a strong position as you begin negotiations. Many sellers won’t even consider an offer without a preapproval letter.

Here are the steps to get preapproved for a mortgage:

Provide the lender with your Social Security number

Create a list of all banking information, employment history, assets, and debts

Fill out a mortgage application

The preapproval process is fairly painless, but don’t begin until you’re ready to buy! Using the information you provided, your lender will perform a hard credit check to verify your DTI and ability to pay for the loan.

Hard credit checks can impact your credit score because they often indicate you’re preparing to take on debt. If you apply before you have your finances in order, that credit check could damage your credit score and make it harder to get approved in the future.

How to choose the right mortgage in Rhode Island

When it comes to deciding on a mortgage, your main considerations should be mortgage term and interest rate. The two most common mortgage terms are 30 years and 15 years.

The longer mortgage terms allow for lower monthly payments, but your interest rate will be higher (around 3.6% on average). On the other hand, a 15-year mortgage can have an interest rate as low as 2.8% or lower, but the monthly payments will be higher since you’ll be paying back the loan in a shorter period of time. Compare your loan options from a few lenders before making the decision.

It’s time to look for a house!

Finally—the exciting part! Once you’ve evaluated your finances and are prequalified for a mortgage, you’re ready to find your perfect house.

Pick your city, town, or neighborhood

Look for a city that meets your needs and interests in terms of cost of living, culture, and climate. Cranston is a popular mid-size city, featuring some of Rhode Island’s most scenic beaches. Blackstone Valley is a small town of about 6,000 people. Families and young professionals enjoy its strong community vibe. For affordability, Cumberland is one of the more lower-cost places to live in Rhode Island. If you love art, you’ll enjoy Cumberland’s selection of art galleries and museums.

If you already have your heart set on a specific location, study the housing market in different neighborhoods and consider what’s important to you: do you want a house near good schools, or a property with easy access to bars and nightlife? Look at local crime rates and take the cost of car insurance into consideration.

Many Rhode Island homes are located in deed-restricted communities, which require residents to follow regulations and pay extra fees set by a homeowners’ association (HOA). If you’d rather avoid those costs and restrictions, make sure that you’re looking for houses in non-HOA communities.

Buyer’s market vs. seller’s market

Knowing whether you’re looking at a buyer’s market or a seller’s market can help you shop smart when it comes to real estate.

In a buyer’s market, supply outweighs demand, and you may be able to negotiate a lower price

A seller’s market occurs when there are more prospective buyers than houses on the market

One quick way to determine whether you’re dealing with a buyer’s market or a seller’s market is to check recent home sales and compare the asking price to the final price. If the asking price is consistently higher than what buyers ended up paying, you’re in a buyer’s market.

Time on the market is another good indicator: in a seller’s market, houses go quickly. In a buyer’s market, homes can remain on the market for weeks or months.

As of the final quarter of 2021, most cities in Rhode Island were seller’s markets. This means that when you find a house you’re interested in, don’t delay! Put your offer in quickly to avoid losing out on the sale. And keep in mind that markets can shift quickly. Do your research when you begin your house search.

Consider using a real estate agent

Finding a house can feel like a full-time job. Hiring a real estate agent isn’t a requirement to buy a house in Rhode Island, but the benefits could be worth it, especially if you live out of state.

Look for an agent with extensive experience in the community where you’re looking. Agents with five or more years experience often have a reliable network of local real estate contacts, are more familiar with local construction, and are confident in their ability to negotiate a great deal. Clear and prompt communication is also a must when it comes to picking a real estate agent—don’t work with someone who doesn’t return your calls.

Make an offer

Once you’ve located that dream home, make your offer! Your realtor can help you fill out the paperwork and recommend the best offer based on the market. If you’ve done all your homework, you’ll be able to make all the necessary payments and soon you’ll move into your new life as a homeowner.

MORE:

How to choose the right kind of home insurance for you

How to save on homeowners insurance

Insurance isn’t the first thing on anyone’s mind when buying a house, and it definitely isn’t the most thrilling part of the process. But homeowners insurance is necessary—to protect your new property and to provide peace of mind.

Lucky for you, insurance shopping is quick and easy when you’ve got

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FAQs

How much money do I need to buy a house in Rhode Island?

The exact amount will vary depending on where you’re buying, how big a down payment you can make, interest rate, and what kind of mortgage you qualify for. With average Rhode Island home values around $405,272, it’s wise to start with at least $51,000 in savings.

What credit score is needed to buy a house in Rhode Island?

Ideally, you should have a credit score of at least 620 to buy a house in the Ocean State. However, you may still qualify for an FHA loan or a VA mortgage if your credit score is at least 500.

What is the best place to buy a house in Rhode Island?

If you’re looking for affordable property in Rhode Island, your best bet is to look at locations in Newport County, where housing costs and property taxes are lower. For profitable rental property, on the other hand, take a look at the towns near the oceanfront, where vacation rentals are popular.

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