How to Buy a House in Rhode Island: 6 Steps

Purchasing a house is a major financial decision that requires careful planning and consideration. Rhode Island's average home value is $473,534, higher than the national average of $362,481, making financial planning key when buying a home in the state.

Understanding down payment assistance programs, mortgage types and state regulations can make homebuying smoother in the Ocean State. MoneyGeek offers tips to guide you, from saving for a down payment and picking the right location to finding the best loan for your needs and credit score.

Rhode Island's homeowner vacancy rate for the second quarter of 2024 was 0.6%, according to the U.S. Census Bureau. This rate measures the percentage of vacant homes available for sale.

A 0.6% vacancy rate indicates a shortage of available homes to meet buyer demand. Limited housing options may increase prices and make it harder for buyers to find affordable homes. A stable vacancy rate is around 2%, offering buyers more flexibility and choice.

Review your financial and credit history before buying a home in the state. A solid financial profile can boost your chances of approval when applying for a mortgage.

Your credit score impacts the mortgage loans and interest rates you qualify for. A higher score improves your chances of getting a better rate. In the third quarter of 2023, the average credit score in Rhode Island was 722, according to Experian.

If you have a bad credit score (below 580 on the FICO scale), you can still buy a house, but it may be harder to get mortgage approval. Check the table below for options based on minimum credit score requirements.

Source: Experian

Your DTI ratio shows how much of your monthly income goes to debt payments, helping lenders decide how much mortgage debt you can handle. Rhode Island's average mortgage debt was $220,470 in the third quarter of 2023, according to Experian, highlighting the added financial responsibility of owning a home in the state.

Monthly debt payments factored into your DTI include your mortgage, student loans, car loans, credit card payments and other debts. Use our debt-to-income ratio calculator below to find your front-end DTI (housing expenses) and back-end DTI (all debts). This tool also shows your total monthly debt payments.

Buying a house you can't afford can lead to financial strain and stress. To avoid this mistake, consider using the 28% rule, which suggests that you shouldn't spend more than 28% of your gross monthly income on your mortgage payment. This helps ensure your housing costs remain manageable within your overall budget.

Rhode Island's median annual income in April 2024 was $50,970, according to the U.S. Bureau of Labor Statistics. That’s a gross monthly income of $4,248 before taxes. Applying the 28% rule, aim to spend no more than $1,189 monthly on your mortgage.

Use our mortgage calculator below to estimate your monthly payment in Rhode Island.

A down payment is the initial amount you pay when buying a home, usually 20% of the purchase price. While this percentage is standard, it can be challenging for many buyers. In Rhode Island, where the average home value is $473,534, a 20% down payment would be $94,707. For a home priced above the average at $490,000, the down payment would rise to $98,000.

Fortunately, a 20% down payment isn't always required. For instance, VA loans allow you to purchase a home with 0% down, while FHA loans need just 3.5%.

If you put down less than 20%, your lender may require you to get private mortgage insurance. Use our PMI calculator to estimate your monthly PMI premium based on your credit score and down payment.

Rhode Island offers several down payment assistance programs, making homeownership more accessible. Rhode Island Housing (RIHousing) has programs that help reduce the initial financial barriers of buying a home.

Finding the right location in Rhode Island involves considering various factors. Evaluate the average house price and proximity to your family, friends, work and school. Access to public transportation, parks, restaurants and shopping centers enhances convenience and overall living experience.

The cost of living is another crucial factor when choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), Rhode Island's cost of living index for the first quarter of 2024 was 113.4, higher than the national average of 100.

Consider these expenses when choosing the right location:

• Food
• Health care
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check the table below for average home values in some Rhode Island cities. You can also use our cost of living calculator to estimate expenses in different areas.

Source: Zillow

Working with a real estate agent can speed up your house hunt in Rhode Island. They give advice, handle paperwork and offer an expanded list of property options you wouldn't access alone. Real estate agents can also recommend other service providers, like title companies and inspectors, to help you buy a home.

When finding a real estate agent, do your due diligence by interviewing agents with experience in the neighborhoods you're interested in. Consider the following tips:

• Find someone who matches your needs and personality.
• Verify the agent's credentials, training and license.
• Ensure they have in-depth knowledge of the area.
• Shop around for agents and compare their rates.

You can also use the Rhode Island Department of Business Regulation's license holder search tool to find or verify real estate agents in the state.

The homebuying process involves finding a mortgage that fits your budget. In Rhode Island, options include conventional, jumbo, FHA, VA and USDA loans. You can choose from 10-year, 15-year, 20-year or 30-year terms and decide between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). Selecting the right financing option can enhance your approval chances and lead to long-term savings.

Mortgage interest rates can change daily due to factors like the loan type, the lender and the economy. While the interest rate is the percentage charged on the loan amount, the annual percentage rate (APR) reflects the actual cost of borrowing by including additional fees and costs associated with the loan.

As of October 2024, the APR for a 30-year fixed conforming loan in Rhode Island is 6.04%, while a 30-year fixed rate FHA loan has an APR of 6.28%. Check the table below to see the current rates in the state by mortgage type.

Getting pre-approved for a mortgage in Rhode Island can simplify your homebuying process. It helps you understand how much you can borrow, giving you a clear budget range. Lenders typically issue a pre-approval letter outlining the loan amount, interest rate and terms you qualify for. This letter is usually valid for 60 to 90 days, giving you time to search for a suitable home.

To secure a mortgage pre-approval, you need to submit several documents:

• Proof of income (such as pay stubs or tax returns)
• Credit history
• Identification (such as a driver's license or passport)
• Proof of assets (such as bank statements)

Understanding the difference between mortgage pre-approval and prequalification is essential. Pre-approval involves a detailed evaluation of your financial background, while prequalification is a basic assessment based on self-reported information. Pre-approval provides a clearer picture of your borrowing capacity and strengthens your position as a buyer.

Home inspections are highly recommended during the Rhode Island homebuying process. Inspectors typically check key parts of the house, including the roof, foundation, plumbing, electrical systems and HVAC. The inspection report outlines the condition of these areas and highlights any potential issues.

If an inspection reveals significant problems like a damaged roof or faulty wiring, the additional repair costs can lower the home's appraisal value. In such cases, you might choose to rescind your offer, especially if the seller is unwilling to address the issues or adjust the price.

The Rhode Island Contractors’ Registration and Licensing Board regulates home inspections in the state. Home inspectors must adhere to specific standards of practice and provide their clients with a detailed written report documenting the inspection findings and noting any areas of concern. This ensures that homebuyers receive a thorough and reliable assessment of the property.

If you're seeking a home inspector in Rhode Island, ensure they're licensed. Check online reviews and ask for references to learn about other clients' experiences. You can also use The Board's registration/license status lookup tool to find or verify licensed home inspectors.

Home appraisals provide an unbiased estimate of a property's market value, helping buyers and lenders ensure the agreed-upon price reflects the property's worth. The median cost of a home appraisal in 2023 was $500, according to the 2023 Appraisal Survey from the National Association of Realtors (NAR).

While inspections and appraisals are often confused, they serve distinct purposes. An inspection evaluates a home's condition, while an appraisal assesses its value. Lenders require appraisals to ensure the property's value justifies the loan amount, protecting themselves and the buyer from financial pitfalls.

Closing is the final step in buying a house in Rhode Island, marking the ownership transfer when you receive the keys. Your lender must provide a closing disclosure document three days before the official closing. This document outlines your loan terms, projected monthly payments and closing costs. Plan a final walk-through with your real estate agent near closing to ensure the property is still in the expected condition.

During the closing day, you'll review and complete several documents that finalize your home purchase and ensure the transaction is legally binding. Here are some documents you will need to sign:

• Final loan application: Confirms your mortgage terms, including the interest rate and payment schedule. It ensures that you and the lender agree before the loan is finalized.
• Deed transfer: Transfers property ownership from the seller to you. It's recorded publicly to officially recognize you as the new owner.
• Promissory mortgage note: A legal promise to repay the loan according to the agreed terms. It outlines the loan amount, interest rate and repayment schedule and is a binding agreement between you and the lender.
• Homeowners insurance: Covers repair costs or replacement if your property is damaged. Homeowners insurance in Rhode Island can protect you financially against risks such as natural disasters or theft.

Closing costs are fees paid at the end of a real estate transaction. Rhode Island's average closing costs are $4,703, according to NAR. These costs include:

• Appraisal fee: Covers the cost of having a professional appraiser evaluate the property's value.
• Title search and insurance fee: Ensures the property's title is clear of any liens or disputes. Title insurance protects against future claims.
• Escrow deposit: Covers future property taxes and insurance premiums.
• Prepaid costs: Upfront payments for homeowner's insurance and property taxes.
• Other closing costs: Include various administrative fees, such as recording and attorney fees.

Learning about the different first-time homebuyer programs in Rhode Island can help you own a home faster.

Buying a house is a long-term financial commitment. To help you kickstart your homebuyer journey, we answered frequently asked questions about homebuying in Rhode Island.