SPRING HOME BUYER’S GUIDE

Spring forward into homeownership with handy facts and insights for planning and making your move in Rhode Island

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As winter snow melts away, revealing the brightly colored bounty of flowers that usher in spring, homeownership begins to look downright appealing. Front porches with overflowing flower boxes invite you to sit a spell and enjoy a glass of lemonade. Neighbors smile and wave as they walk by. The idea of homeownership is idyllic.

But owning a home isn’t all backyard BBQs and brightly colored roses. There are pros and cons of being both a homeowner and a renter. Hate yard work? Rent. Love fuchsia walls? Own. Keep life flexible? Rent. Want to get a big dog? Best to own. We could go on.

With all major 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 factors 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, the burden is on you. 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.

BEFORE YOU BUY: A HANDY CHECKLIST

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:

  • Check your credit
  • Assess your spending
  • Budget for new or changed expenses
  • Determine your down payment
  • Decide how much you want to spend on a home
  • Consider whether it's the right time for you to buy
  • Build a network of advisors
  • Create a loan application packet

Set aside some money to cover initial home expenses; from a fresh coat of paint to something more major, new homeowners often have to pay for some fixes before moving in. If upsizing, you’ll need additional pieces of furniture to fill the new home. 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 continues to be a rapidly changing market. Throughout this process, you need to work with many professionals, including real estate agents and loan officers.

MOVING COSTS

Unless you are minimalist and can fit all your stuff in a friend’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.”

HOME INSPECTION AND APPRAISAL

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.

If you are applying for a mortgage, most banks will do a home appraisal. If the appraisal comes in lower than the purchase price — which can happen in an overheated market prone to bidding wars — you might need to make up the difference in cash or the homeowner will need to come down to match what the bank will lend. If the appraisal comes in higher than the purchase price, you’ve hit the real estate jackpot. 

All IN THE TIMING 

You put in an offer, and it gets accepted. That’s wonderful! But don’t call the movers just yet.  The homebuying process can take anywhere from weeks to months, depending on what needs to be done. You still have to go through the inspection and negotiate any problems that may turn up. If the sale is contingent on the homeowner finding a place to live, this can drag out the process. Be sure you have key dates in writing and stay on top of any work that the homeowner might need to address before you sign on the dotted line.

LOCATION, LOCATION, LOCATION

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 East Providence and wonder about the weather in North Smithfield). Don’t forget to visit at various times. A quiet neighborhood by day may turn into a party palace once night falls. Consider checking in with local law enforcement to ask about the area.

Many lenders require prospective buyers to participate in classes to help understand the process of buying and keeping a home, and most continue to offer remote options. Also ask lenders about any special programs, like RIHousing’s 10kDPA program, which provides a $10,000 down payment assistance loan to eligible homebuyers in Rhode Island.

THE FINANCIALS

LOANS & RATES

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

Interest-only: Interest-only (I-O mortgage) plans allow you to pay only the interest on the loan for a specified period. This means a lower monthly price gets you started. Once the I-O period ends, your monthly cost could rise significantly, since you are now paying principal and interest.

Private Mortgage Insurance (PMI): An additional cost that will be required by your lender if you don’t put 20 percent down.

CLOSING COSTS

Generally speaking, the seller incurs the bulk of the closing costs, including line items like the real estate commission and sales tax. But even buyers can incur certain closing costs, such as paying the balance on real estate taxes and city provided utilities (water, sewer) as well as any fees associated with the mortgage such as “points” purchased (used to lower your interest rate), plus any loan origination or writing fees. You may be able to negotiate the fees with your bank, so be sure to check before agreeing to the loan. The seller may also be willing to cover the costs, although this is rare in a seller’s market. Scheduling the closing at the end of the month could also help keep some line-items lower.

PROPERTY SURVEY

Rhode Island does not require a property survey as part of the homebuying process, but you may want to add this line item to your expenses for peace of mind. After researching the property, a surveyor will go out and physically examine the land, creating a map that details the legal boundaries, easements, etc. Knowing the physical property boundaries can help any disputes that may arise and help protect your investment.

REAL ESTATE WHO’S WHO

A glossary of titles to help decide which professional is right for you.

  • Real estate agent: Someone with a professional license to help people buy, sell, or rent all sorts of housing and real estate.
  • Buyer’s agent: Assists and represents their clients through every step of the homebuying 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.
  • 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: Helps consumers find properties to rent. 
  • 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. 

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