There’s something about seeing those first bright yellow daffodils emerge from muddy gardens around the Ocean State that makes the notion of homeownership look idyllic. However, as any property owner will confess, it’s not all roses. There are pros and cons of being both a homeowner and a renter. Want to nix yard work? Rent. Paint the walls blue? Own. Keep life flexible? Rent. Looking for tax deductions? Own. We could go on...and we’re about to!
With all life decisions, making the move from renter to owner is highly personal and depends on myriad factors. Sometimes due to mortgage rates, the cost of rent vs. a mortgage payment is a wash, but it’s the other things that come into play. For example, if you rent an apartment and need a new water heater, the property owner should handle that, but if you’re a homeowner, it’s all on you to figure out. And, there’s always a good chance that soon after you take ownership, something big will need repairing or replacing, so as you make your budget, pad for the unexpected.
If you decide that homeownership is right for you, congrats! It’s exciting and scary, and the process is not always as glamorous as it looks on TV. In tandem with making your wishlist of half-baths and fireplaces, school systems and dog parks, get real about your financial situation and work to get your credit score in good standing, if needed. The Consumer Financial Protection Bureau (CFPB) offers this checklist and advice:
Set aside some money to cover initial home expenses: New homeowners often find things that need fixing, or discover that they need an additional piece of furniture to make the new home work for their family. Moving expenses (see sidebar) and utility set-up fees can also add up. When thinking about how much you can afford for a down payment, make sure to set aside some money to cover these expenses.
Start to gather names of real estate professionals recommended by friends, relatives, and colleagues: Ideally, you want someone who does this full-time and is on top of what has become a very rapidly changing market. Throughout this process, you need to work with many professionals, including real estate agents and loan officers.
Mortgage forbearance: If you are facing financial hardships and need forbearance, you should ask for forbearance immediately. Forbearance is when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage. You will have to pay the payment reduction or the paused payments back later. If your loan is backed by HUD/FHA, VA, USDA, Fannie Mae, or Freddie Mac, you only need to explain that you have a COVID-related financial hardship, directly or indirectly related to the pandemic. Even for those loans not backed by Fannie Mae, Freddie Mac, or the federal government, mortgage servicers are generally required to discuss relief options with you. Source: ConsumerFinance.gov
Rental assistance: Rhode Island has made an additional $5 million in emergency rental assistance available to low-income renters who have been impacted by the COVID-19 emergency and are at immediate risk of homelessness. Those who qualify can receive a grant of up to $5,000 to support past due rent payments and other fees. Requirement information and details are available at HousingHelpRI.com or by calling 211. Source: COVID.RI.gov
Unless you have the minimal trappings of a very first apartment (milk crates, futon) and can fit it all in somebody’s pick-up for the cost of pizza and beer, you probably need to hire movers. According to Consumer Affairs, hiring movers can cost anywhere between a few hundred dollars to several thousand, depending on how far you’re moving and how much work you’re willing to do yourself. The amount of personal property you’re transporting also affects the total cost. The average cost for a local move is $80 to $100 per hour for a team of two movers. The total cost you’ll pay for a local move is mostly a function of how long it takes the moving crew to load and unload the truck — meaning the more items you have, the more you’ll pay to move them. Movers will also pack for you, for a fee, and therefore are responsible for “accidents.”
Many factors go into deciding where to live. Do you want city-living with cafes within walking distance? Maybe something by the water? Or it could be based solely on how school systems rank. This is where going down various real estate website rabbit holes can help. RILiving.com for example offers neighborhood reports, tax rates, and helpful stats about cities and towns, even the monthly median temperature (especially handy if you live in Bristol and wonder about the weather in Woonsocket). Drive or walk around the immediate neighborhood so you don’t start complaining about the noise from the fire engines leaving the station that’s right around the corner.
Many lenders require prospective buyers to participate in classes to help understand the process of buying and keeping a home. Like most everything else, classes have pivoted to accommodate remote options. Also ask lenders about any special programs. RIHousing recently announced the 10kDPA program, which provides a $10,000 down payment assistance loan to eligible homebuyers in Rhode Island.
Long term: Lower monthly payment but you’ll pay more in interest.
Short term: Higher monthly payment but you’ll pay less over time in interest.
Fixed rate: Your interest rate and monthly principal and interest payment will stay the same, but your total monthly payment can still change—for example, your property taxes, homeowner’s insurance, or mortgage insurance might go up or down.
Adjustable rate: Adjustable-rate mortgages (ARMs) offer less predictability but may be cheaper in the short term. Source: ConsumerFinance.gov
Private Mortgage Insurance (PMI): An additional cost that will be required by your lender if you don’t put 20 percent down.
A glossary of titles to help decide which professional is right for you
Buyer’s agent: Assists and represents their clients through every step of the home-buying process, including finding the right home, negotiating an offer, recommending other professionals (e.g., mortgage brokers, real estate attorneys, settlement companies), and troubleshooting problems (e.g., home inspection or appraisal issues).
Listing agent: A real estate agent who represents a home seller and helps clients who are selling with a wide range of tasks, including pricing their home, recommending home improvements or staging, marketing their home, holding open houses, coordinating showings with home buyers, negotiating with buyers, and overseeing the home inspection process and closing procedures.
Realtor: A licensed agent with the ability to use that widely respected title, an agent needs to be a member of the National Association of Realtors®. The Rhode Island Association of REALTORS® is one of the largest trade organizations in Rhode Island with more than 6,000 members in approximately 900 offices.
Real estate agent: Someone with a professional license to help people buy, sell, or rent all sorts of housing and real estate.
Real estate broker: Someone who has taken education beyond the agent level as required by state laws and passed a broker’s license exam.
Rental agent: Help consumers find properties to rent.
"When selling, it’s best to keep your house as organized and decluttered as possible. It’s always a good idea to stage rooms to show how they are supposed to be used." -Caitlyn Wass, Residential Properties
"This is an incredibly dynamic and fast-moving seller’s market. When listing your home, make sure to work with a real estate agent who utilizes up-to-date market data and does not price your home simply based on past sales in your area. You will achieve the highest market value by pushing the market and capitalizing on the current activity. The pulse of the market is in the pendings." -Kira Greene, Greene & Sweeney Team, Residential Properties
"My tip for sellers: Take advantage of the higher sale prices and get on the market NOW. Even with the shortage of listings, don’t neglect repairs and condition – those still matter! For buyers, bank a good deal of patience, listen to your realtor who is in the market every day and will be able to do an analysis with advice about a winning offer. That being said, consult with your mortgage lender to know just how far over the asking price you are safe to go because many homes are indeed selling over asking." -Pat Lenihan, Broker Manager of Coldwell Banker
"Enjoy what you do for your clients. Listen carefully to their real estate needs and then put all your effort and more into achieving their goals!" -Anita Langer, Residential Properties LTD
"With our current low inventory, buyers have one shot, in many cases, to make an offer on a home and make that offer stand out among many others. Escalation clauses have become common practice. Many homes that come to market continue to draw multiple offers and ultimately sell well above their asking price. As a buyer, it’s important for your offer to stand out as much as possible among a sea of offers. Most times, a buyer will submit an offer at asking price and apply an incremental escalation over and above other offers up to a max purchase price of their choosing. One way to get your offer to stand out is to consider starting the base price of your offer above the asking price to grab the seller’s attention right off the bat. Then, utilizing your Escalation Clause, instead of using a typical $1,000 incremental amount over the next highest offer, consider increasing the increments to a larger amount so that, if the escalation clause is applied, the sellers will end up with more money in their pocket at the end of the transaction." -Keller Williams, Newport
"Listen to your realtor." -Chris West, Gustave White
After falling for the first house or visiting many, you have found “the” house and made an offer. Next steps are inspections and appraisals. The inspection is for your own protection and is a step that should not be skipped. Ask your real estate or buyer’s agent to recommend a home inspector and make sure this person is reputable (check those creds). An inspector will examine the property inside and out, looking for serious flaws. According to CFPB, if your purchase contract is contingent on a satisfactory inspection, you should be able to cancel the sale without penalty. You can also then be in a position to negotiate with the seller for certain repairs, etc.
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