Rhode Island Mortgage Rates

Living in Rhode Island

At just 1,214 square miles, Rhode Island is the smallest state in the U.S. But what the Ocean State lacks in size, it makes up for in geographic variety. It has more than 400 miles of coastline, and over half of the state is forested, yet it still manages to squeeze in farmland and rich Native American and colonial history.

However, it can also be an expensive place to buy a home. According to the Rhode Island Association of REALTORS, the median price of a single-family home sold in April 2019 reached $275,000, which is significantly higher than the national median of $217,600, according to date from the U.S. Census Bureau’s American Fact Finder. It’s also a 2.1% increase from April 2018.

The Rhode Island Association of REALTORS points to heavy competition and low inventory in the state as drivers for rising prices and homes selling at a hectic pace. With less than four months of inventory for single-family homes and 2.8 months of supply in the multifamily market, buyers in Rhode Island will likely continue to face a highly competitive housing market.

The rules and costs of buying a home in Rhode Island

Several rules and regulations impact homebuying in Rhode Island. Below, we highlight some of the real estate laws, taxes and conforming loan limits in the state.

Home seller and buyer laws

Rhode Island law requires that home sellers fill out a disclosure form describing anything that could hurt the value of the property or affect a buyer’s decision to purchase the property. For example, the disclosure might request information on issues such as:

  • A basement that leaks when it rains
  • An old roof that needs to be replaced
  • An infestation of termites or other pests
  • Defective heating or air conditioning systems
  • Any easements or encroachments that limit the use of the property

The law does not set a specific timeframe for providing the disclosure but requires that it be delivered to the buyer before signing any agreement to transfer the property.

Rhode Island is an escrow state, meaning a lawyer is not required to represent the buyer during the course of a home purchase. Instead, an independent escrow officer can oversee details and the signing of a purchase agreement, though it’s recommended that an attorney review the documents.

Rhode Island law allows for both judicial and nonjudicial foreclosures. In a judicial foreclosure, the lender must file a lawsuit and obtain a court order to foreclose on the property. In a nonjudicial foreclosure, a “power of sale” clause is included in the deed of trust or mortgage. With this kind of foreclosure, after an established waiting period, the lender can foreclose on the house if the homeowner defaults on their mortgage payments.

When it comes to divorce, Rhode Island is an equitable distribution state. Rather than splitting property 50/50 during a divorce, as you would in a community property state, marital assets are divided equitably. The courts may consider the following factors when deciding how to split property between the spouses:

  • Length of the marriage
  • Conduct of the parties during the marriage
  • Contribution during the marriage towards the acquisition, preservation and appreciation in value of the property
  • Contribution and services as either spouse as a homemaker
  • Health and age of the spouses
  • Amount and sources of income from each of the spouses
  • Contribution by one spouse to the other spouse’s education, training or increased earning power
  • Either spouse’s wasting of assets or transferring assets before the divorce

Taxes

Rhode Island transfer taxes can be charged by cities, counties or state tax authorities whenever real estate changes hands and the consideration paid is greater than $100. At the state level, the tax is imposed at a rate of $2.30 for each $500 (or fraction thereof) of the purchase price.

This means if a home sold for $250,000, the state transfer tax would be $1,150. Your lender is required to disclose the amount of transfer taxes payable once you’ve identified a property.

The average annual property tax bill for homeowners in Rhode Island is $3,618 based on a home of the median value of $267,100, according to an analysis fromTax-Rates.org. The state ranks fifth out of 50 states for the highest average property tax rates.

There are property tax exemptions available that allow certain homeowners in Rhode Island to have their property tax bill reduced. Statewide, there are exemptions available to homeowners who are elderly, veterans, widows of veterans or Gold Star parents. The maximum exemption and qualifications vary by city. You can find more information on these property exemptions on theRhode Island Division of Municipal Finance website.

Conforming loan limits

Theconforming loanlimit for mortgages purchased by either Fannie Mae or Freddie Mac is $484,350 for one-unit properties in every county in Rhode Island.

Conforming loan limits are a cap on the size of a mortgage thatFannie Mae and Freddie Macare willing to buy as they work to both stabilize the mortgage market and make homes affordable. For consumers who have good credit, conforming loans usually offer the best interest rates. Loans above the limit are known as jumbo loans, and they tend to be riskier and command higher interest rates.

Programs for homebuyers in Rhode Island

Prospective homebuyers in Rhode Island have access to several in-state assistance programs.

FirstHomes 100

The FirstHomes 100 program administered by RIHousing, Rhode Island’s housing finance agency, offers loans forfirst-time homebuyersin the state. These are fixed-rate, 30-year, low-interest loans with options for no money down and closing cost assistance.

Who qualifies:

  • First-time homebuyers
  • Annual household income less than $95,948 for a 1- to 2-person household, or $110,341 for a household with 3+ people
  • Maximum purchase price of $454,258 for a 1- to 4-family home or condominium

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FirstHomes 100+

The FirstHomes 100+ program, also administered by RIHousing, offers loans for first-time homebuyers in the state who are interested in buying a home in need of repair. These are fixed rate, 30-year, low-interest loans with options for no money down and closing cost assistance.

Who qualifies:

  • First-time homebuyers
  • Annual household income less than $95,948 for a 1- to 2-person household, or $110,341 for a household with three or more people
  • Maximum purchase price of $454,258 for a 1- to 4-family home or condominium
  • Buyer must purchase a home in need of repair and finance the cost of repairs into the mortgage

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FirstHomes Tax Credit

The FirstHomes Tax Credit is also administered by RIHousing. It’s a federal tax credit available to first-time homebuyers and non-first-time homebuyers in the targeted areas.

The credit is equal to 20% of the total mortgage interest paid for the year, up to $2,000 per year for the life of the loan as long as the borrower continues living in the home as their primary residence.

Who qualifies:

  • Must be a first-time homebuyer borrowing through RIHousing or a FirstHomes tax credit approved lender, or a purchaser in select areas (Providence, Pawtucket, Central Falls and Woonsocket)
  • Available for homes with a maximum purchase price of $441,176
  • Buyer’s total annual household income must be less than $93,623 for a one- or two-person household or $107,667 for a household of three or more people

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Beyond FirstHomes

For non-first-time homebuyers looking to refinance or purchase a new home, the Beyond FirstHomes program offers several mortgages with down payments as low as 3% and no mortgage insurance requirements for qualified buyers.

Who qualifies:

  • Annual household income less than $95,948 for a 1- to 2-person household, or $110,341 for a household with 3+ people
  • Maximum purchase price of $454,258 for a 1- to 4-family home or condominium

Learn More

Down Payment and Closing Cost Assistance Program

Homebuyers in Rhode Island’s capital of Providence may be eligible for the Housing Network of Rhode Island’s Down Payment and Closing Cost Assistance Program.

The program offers maximum assistance of $20,000. The assistance comes in the form of an interest-free loan that is forgiven after the restriction period. That restriction period is five years for assistance of $15,000 or less and ten years for assistance of more than $15,000.

For a single-family home, the purchase price is limited to $204,000 for an existing home or $260,000 for new construction.

Who qualifies:

To qualify, applicants must:

  • Have a household income at or below 80% of area median income
  • Be purchasing a 1-3 family home in the City of Providence
  • Plan to live in the home as their primary residence
  • Complete 8 hours of HUD-approved Homebuyer Education before closing
  • Contribute at least $1,500 of their own funds to the purchase

Learn More

Rate shopping tips

To get the best rate on your mortgage, follow these tips:

Contact at least 3 lenders on the same day

Mortgage rates change constantly and also vary depending on the type of lender. If you’re shopping for a mortgage, get quotes from lenders on the same day to make the best possiblerates comparison.

Give each lender the same information

It’s important to make sure you provide the same information to each lender. This includes information about your income, assets and debts. Also, let your lender know which type of loan you are interested in. You’ll have a hard time comparing a quote for say, a 30-year, fixed-rate loan to a 7/1 ARM, a type of adjustable-rate mortgage where the interest rate is fixed for the first seven years.

Add up all the lender fees to confirm the costs

Getting a mortgage involves many fees, including loan origination and underwriting fees, broker fees and otherclosing costs. Potential lenders should provide you with an estimate of the fees you’ll pay with your loan. Some of these are negotiable, while others are set by state or local statute. Add up the fees to compare costs for each lender. If you don’t understand some of the fees on the estimate, ask the lender to explain.

Know when to lock in the rate

Once you have loan terms that work for you, you may want tolock the interest ratewith your lender. Locking a rate holds the interest rate for a set period, usually 30 to 60 days, and also prevents your loan from being affected by rising interest rates while it is being processed. If your closing extends beyond that date, the lender may charge a fee to extend your rate lock.

Of course, the downside to a locked-in interest rate is you may end up paying a higher mortgage rate if rates should fall. Check to see whether your lender offers a float-down rate-lock option so that you can benefit if there is a drop in mortgage rates.

The information in this article is accurate as of the date of publishing.