Buying a house is a landmark achievement for anyone. After years of careful spending and making investments, you may finally be in a position where you can purchase your own home.
Or at least that may be what you have assumed. It is only when you start the process of buying a home that you realize that you may be a little light on funds.
Before you move forward with any plans to purchase a home, you need to first learn about all the costs involved in that process. Those costs will be the focus of this article.
Join us as we discuss the true price of buying a home in Rhode Island and find out if that is something you can do right now.
Listed Price for the Property
The first number that matters when trying to determine the cost of buying a new home is the listed price for the property.
Remember that the listed price for most properties is hardly ever fixed. Together with your realtor, you can negotiate with the seller in the hopes of locking in your new home at a more affordable price.
This is the part of the home buying process when you need the services of a real estate agent. Lean on their expertise to help you identify the right price point. Work with them to get the listing price to that level without alienating the seller.
Your realtor can also tell you when you need to start closing the deal. Dragging out the negotiations may cause the seller to look elsewhere for a buyer, and you may be left empty-handed.
Next up, let’s talk about down payments. Crucially, you do not always need to make a down payment if you are buying a house. Whether or not a down payment will be required will depend on the loan you are getting.
If you took out a conventional loan to buy your home, you must make a down payment to finalize the purchase. The cost of the down payment for conventional loans is not fixed.
You’ll find that some lenders will require you to pay around 20 percent of the listed price. Others will necessitate a significantly smaller down payment.
Shop around for loans until you find the deal that works best for you.
The down payment you will need to make for an FHA (Federal Housing Administration) loan will depend on your credit score.
According to Investopedia, buyers with a credit score between 500 and 579 can secure an FHA loan if they agree to make a 10 percent down payment. If your credit score is 580 or higher, the FHA will only require you to pay off 3.5 percent of the listed price initially.
Notably, you do not need down payments on loans backed by the USDA (United States Department of Agriculture) and the Veterans Benefits Administration.
If you are taking out a loan to complete your home purchase, you will need to consider the interest rates as well. Make sure you look at the interest rate for your loan before you finalize the deal.
Though it may seem like you are getting a great deal because of the low down payment, the lender may attempt to recoup their investment and then some by charging you a high-interest rate.
The pandemic has caused interest rates for mortgages to drop, but that may be changing soon enough. There may not be enough time for you to take advantage of the low-interest rates if you are starting the buying process now.
Also, mortgage loans that feature consumer-friendly interest rates often necessitate buyers to make larger down payments. Make sure you factor that into your calculations when you are deciding where to get your loan from.
Mortgage lending is a business, and the companies working in that field are always looking out for their bottom line. To shield themselves from potentially significant losses, lenders often require borrowers to purchase mortgage insurance.
Private mortgage insurance is a required purchase if you took out a conventional loan and your down payment was less than 20 percent of the listed price.
Paying mortgage insurance is a requirement not only for those who took out conventional loans. You may also need to pay for that even if you secured an FHA or USDA loan. In that case, you will be paying for a mortgage insurance premium instead of private mortgage insurance.
When calculating the costs of buying a house, you cannot forget about property taxes. That is especially important if you are buying a home in the state of Rhode Island.
Per SmartAsset, Rhode Island has one of the higher property tax rates in the United States. On average, you can expect your effective property tax rate to be right around 1.53 percent. Factors such as the assessed value of your property and the location of your home can still cause that tax rate to change.
Although paying for more taxes is probably not something you are thrilled about, you can at least rest easy knowing that paying them will not be a hassle. More often than not, the lender will already include your property tax payments in your monthly mortgage. As long as you are paying your mortgage on time, you do not need to worry about missing tax payments.
Lenders collect property tax payments that way so they can protect themselves if you stop paying your loan.
To complete the process of buying a house, you will also need to pay closing costs. Closing costs account for various fees, and they go out to different entities.
Included in those closing costs are appraisal fees. The appraisal fees go to a certified appraiser who will assess the value of the property you are purchasing. Lenders usually require buyers to pay for an appraisal before approving a loan.
Apart from the appraisal fees, you may also need to pay inspection fees. Those fees will go to inspectors who will check the property for any signs of damage. Your lender may also require home inspectors as a condition of loaning you money.
You may also need to pay for attorney or broker fees if you are hiring professionals to help guide you through the home buying process. In some cases, paying attorney fees will also be necessary before they discharge the title and mortgage of the property to you.
Transfer taxes may also be attached to home selling transactions. In Rhode Island, the seller is typically the one who has to pay transfer taxes.
Those are only some of the closing costs associated with your home purchase. There may still be other fees or taxes you need to pay based on the terms of your negotiations with either the seller or your lender.
The home you are interested in buying may be in an area covered by a homeowner’s association. If that is the case, then you will need to pay HOA fees.
Voluntarily living in a home where you pay for HOA dues may seem like an odd choice but remember that your money is not going to waste. Being a member of a homeowner’s association means you have access to certain services.
Many of those services make it easier for you to maintain your property. Your homeowner’s association may pay for snow removal or basic yard maintenance. Members may also have access to communal areas owned by the HOA.
HOA fees can change from one association to the next. However, they often end up around $200 to $300 per month.
Home insurance is not a required purchase for Rhode Island residents. Even so, purchasing a home insurance policy is still in your best interests.
Various homes across Rhode Island are more susceptible to damage caused by extreme weather due to how close they are to the water. You can protect your investment better by purchasing home insurance.
Unfortunately, damage caused by flooding is typically not covered by home insurance. You will need to get a separate policy if you want protection from that.
Lastly, you should consider how much moving will cost before you finalize your home purchase.
The last thing you want is to buy the home and realize later on that you do not have enough money to move your possessions into it. You may end up having to pay bills for two properties until you have enough money to move.
The cost of moving will also change based on where you are relocating.
If you are relocating within the same state, the cost of moving could be relatively cheap. You may be able to keep your moving expenses closer to $1,000 if you have friends and family members helping with your move.
Moving to a new state will be more expensive. Do not be surprised if the total cost of moving into your new home is closer to $6,000.
Do you need help buying a house in Rhode Island? If so, feel free to reach out to us at the RI Home Store for assistance. We will help you find the property that meets your preferences so you can better enjoy your life in Rhode Island!