Buying a home is the biggest investment that most people ever make. Being prepared and educating yourself on all the things you need to know is critical to you becoming a successful homeowner. Our FirstHomes100 and 100+ counselors and our Homebuyer Education experts can help. We provide all the advice and resources you need to help you buy a safe, healthy home that you can afford and keep it for as long as you want.
1. Above all else, consider a home as a place for you and your loved ones to live.
2. Only buy what you can afford.
Create a budget and know how much you can comfortably pay per month for your home.
3. Insist on a home inspection.If at all possible, be present at the inspection. You can learn a lot and get questions answered directly from the home inspector.
4. Read the fine print.
5. Be an informed buyer. Ask lots of questions. Make sure you get a complete and clear answer to every question. The more you know the more you will save.
6. Shop for a safe mortgage that allows you to stay in the home as long as you want. Compare loan details from several lenders. Get all the terms in writing.
7. Take your time, don't feel rushed.
If someone rushes you, walk away. Realize that lenders, attorneys and real estate professionals get paid only when/if your loan closes.
8. Don't sign anything you don't understand. Seek advice from a trained professional.
9. Contact Rhode Island Housing for help with any question related to housing.
10. Know what you are buying.
The purchase and sale agreement should allow you to have an independent inspection and to have repairs made before you buy. A home inspection will tell you the condition and identify necessary repairs to things like the roof, heating system, plumbing, wiring, foundation and lots more.
Financial Considerations and Terms to Know When Buying a Home
11. Know where your loan will be serviced and whether it can be sold.
Rhode Island Housing loans are serviced by Rhode Island Housing in Rhode Island.
12. Get a mortgage pre-approval before you start looking for a home. This will give you a plan for how much you can afford.
13. Get a free copy of your credit report at www.annualcreditreport.com or by calling 877 322-8228. The website is sponsored by the nation's three major credit reporting companies: Equifax , Experian and TransUnion.
14. Verify the accuracy of your credit report.
It’s a good idea to get credit reports from each of the three major credit reporting companies (Equifax, TransUnion and Experian) to assure there are no mistakes.
15. Know your credit score.
Your credit score is used by all lenders to determine if they will lend you money and at what interest rate. Ask if you qualify for a lower rate. You can purchase a credit score through www.annualcreditreport.com or by contacting one of the three nationwide consumer credit reporting companies: Equifax , Experian and TransUnion.
16. Consider the security of your job.
17. Think carefully about how your family income may change over time. Local property taxes are likely to go up every year.
18. Consider the costs of your child's education in the future and how that will affect your budget.
19. If something seems too good to be true, it probably is!
20. Participate in a free Homebuyer Education class offered by Rhode Island Housing and its partners.
21. Take advantage of the extended and expanded federal tax credit of up to $8,000 for first-time homebuyers and some current homeowners.
22. Before you sign the purchase and sale agreement, make sure your lender can meet its deadlines.
23. Pay close attention to deadlines in all documents. Once you agree to a deadline, it is costly not to comply.
24. Find out if you can make early payments on all or part of your mortgage without penalty. Sometimes there are large fees to do so.
25. Know the property taxes for the home.
If information about the previous year’s property taxes is not included in the home’s listing information, ask the seller for a tax receipt, contact the local tax assessor’s office or ask the real estate agent to get it for you.
26. Determine whether the home is eligible for a homestead tax adjustment.
Certain communities, including Providence, North Providence, Lincoln and East Providence, provide homeowners that occupy their property as their primary residence a tax discount. The homeowner must be the owner of record before December 31 of that year to qualify and must apply to get the discount. It could save you up to 50 percent on your annual property tax bill.
27. Consider the cost of insurance.
A fully paid homeowner’s insurance policy is required at closing, so arrangements will have to be made prior to that day. In addition to homeowners insurance, you may need flood insurance. Determine whether the home you are interested in is in a flood plain by asking your real estate agent or lender.
28. Look for financial stability and a reputation for customer satisfaction when choosing a lender.
29. Putting down a larger down-payment means you will have to borrow less money and you will have more equity in your new home, but you will have less money if an emergency arises.
30. Financing can be tailored to you. There are special programs for veterans and reduced interest rates for homebuyers with good credit. You may be able to negotiate for the seller to pay points.
31. Points are fees that you must pay at closing. One point on a $100,000 mortgage equals $1,000.
32. If this will be your first home, look for special loan programs for first-time homebuyers.
33. If you use an escrow account to pay property tax or homeowner’s insurance, make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments.
34. Search for a safe mortgage that you will be comfortable with for as long as you want to keep the home. More than 60,000 Rhode Island families have purchased their first home with a mortgage from Rhode Island Housing.
35. Always be truthful on all forms especially loan applications and closing documents. Federal law requires Truth in Lending for everyone.
36. Your home payment will include principal, interest, insurance and taxes. Calculating monthly principal and interest payments is difficult. You will need a special calculator or you can ask your real estate agent or lender to give you estimated payments based on various loan amounts and interest rates.
37. Don't take on a payment you are not comfortable with even if you are told you qualify for it. Just because you qualify for a larger payment does not mean it is right for you. You need to factor in all of your own personal monthly expenses.
38. Only buy what you can afford. Most homebuyers struggle to pay more than 35 percent of their monthly income for housing costs.
39. Create a realistic monthly budget.
Every family should know their monthly income and where that money goes. If you increase the amount that you are spending for your home, what can you cut? Be honest with yourself. Compare what you are paying for rent vs. what your mortgage payment will be.
40. Keep in mind that your mortgage interest and real estate taxes will be tax deductible, but how much that saves depends on your tax bracket. Most homeowners get about 20 percent of their mortgage interest and property tax amount refunded by the IRS.
41. Build and protect your credit.
After you purchase your home, resist the urge to spend a lot of money (on upgrades and furniture, etc.) Especially avoid building up credit card debt.
42. Start saving now for down payment, closing costs, moving expenses, cash reserves, anything you will need when you move in.
43. If you don’t pay your mortgage on time every month, you will have to pay large fees and it will damage your credit score.
44. If you don’t pay your mortgage for several months, the lender will take your house away. This is called foreclosure.
45. The closing is when you actually buy your home. Closing usually takes place 30 – 60 days after you sign the purchase and sale agreement. You will receive the deed, sign your mortgage and many other documents and pay all of your closing costs.
46. Closing costs include points, fees and charges of the lender, attorney costs, advance mortgage, tax and insurance payments. These are likely to be several thousand dollars. Get an estimate from your real estate agent early in the process and review final amounts a few days before the closing.
There is a federal law (called the Real Estate Settlement Procedures Act (RESPA) that requires you to be informed about all closing costs and payments in advance on a form called the HUD – 1.
47. Interest is what lenders charge you to borrow their money.
48. The higher the interest rate the more you must pay.
49. Remember that a lender must disclose the Annual Percentage Rate (APR) to you.
This rate includes the interest rate, points and fees and mortgage insurance. Comparing APRs is the best way to shop.
50. Some loans have fixed interest rates for 30 years; others are adjustable and change during the life of the loan (ARMS). Understand what happens or could happen to your payments over 30 years. Be extra careful when evaluating anything other than a 30-year, fixed-rate loan.
51. Make sure you fully understand your rates and whether they change through the life of the loan.
52. If interest rates drop significantly, you may want to consider refinancing, but do not count on it when figuring out how much you can spend.
53. Homeowner insurance protects you and your lender against losses from fire and lawsuits. Shop around for homeowner’s insurance. The costs and coverage can vary widely.
54. Many lenders require you to make monthly escrow payments so there will always be money to pay taxes and insurance. For most borrowers, escrows are a good idea. Money will also be needed at closing to start the escrows.
55. An appraisal is an estimate prepared for the lender to determine your home’s true value. It is not a home inspection prepared for you.
56. Signing a purchase and sale agreement is the first big step toward buying a home. Take the time to understand everything that is written there. Read all of the fine print. You are agreeing to spend a huge amount of money. It is a good idea to have your attorney review it before you sign.
57. Add to the “additional comments” section of the purchase agreement, language that makes the sale subject to an appraisal amount, at or above the purchase price, to avoid last minute appraisal issues.
58. Title insurance guarantees to the lender that you are buying your home free and clear. Make certain the title policy covers you as well.
59. Mortgage insurance protects the lender if you stop paying your loan. If you don’t save enough to pay 20 percent of the purchase price (80 percent loan-to-value ratio) plus all costs at closing, you will likely need mortgage insurance. This can come from the federal government (FHA) or a private company. Check out the costs and benefits of various programs.
60. Regardless of where you apply for a loan, Rhode Island Housing will offer you assistance in understanding the terms and talking about better options that might be available. Talk with the Loan Counselors at Rhode Island Housing. Call 401 457-1234 for free no obligation advice.
61. If closing-cost credit is being offered by the seller, confirm, before signing the purchase agreement, that closing costs will be high enough to use the full seller’s credit, especially if the purchase price was increased to facilitate the credit. It sounds complicated and it is. Make certain you understand everything.
62. If you are buying a house with another person, learn about the different forms of ownership.
63. The two most important provisions of the purchase and sale agreement are the mortgage contingency paragraph and the home inspection paragraph. They typically contain tight deadlines that cannot be missed without severe consequences.
Finding the Right Professionals to Help You With This Important Life Decision
64. Choose a real estate agent who makes you feel comfortable and can provide the knowledge and services you need.
65. It is very important to hire a real estate attorney or your own lawyer to help with complex paperwork and legal contracts.
66. Unless you have a buyer’s agent, remember that the real estate agent works for the seller.
67. Listen to your real estate agent’s advice, but follow your own instincts when deciding on a fair offer.
68. Your real estate agent can get you information on comparable sales in the neighborhood plus information on schools, utilities and property taxes.
Community and Neighbors
69. Choose a home and community that allows you to best live your daily life and that meets your lifestyle.
70. Learn about the schools where your children would go. Contact the local school department.
71. Contact the local Chamber of Commerce to learn about community resources.
72. Walk the neighborhood and talk to neighbors. Visit the home and neighborhood at different times of day and on different days of the week.
73. Think about nearby traffic and noise sources.
74. If you feel excluded from a certain home or neighborhood, contact the U.S. Department of Housing and Urban Development (HUD) at 800 669-9777 or visit FairHousingRI.org.
What to Look for in a Home
75. Buy with your head, not your heart.
Walk through a potential home with your head first and your heart second.
76. Learn the ABC's: affordable, built well and comfortable.
77. Before shopping for a home, make a list of what is most important to you – neighborhood, style or size of the home, size of the yard, etc…
78. Consider whether the home meets the needs of your family and your lifestyle.
79. Stay organized. Keep a notebook to record your budget, write down questions and answers as they come up, and notes on homes you view. It’s a good place to keep pictures of the homes you’ve visited too and of special features you want to remember.
80. Know the challenges as well as the benefits of owning a home.
81. Get a lead inspection. If the home was built before 1978 and you have children under age 7, you will want to have it inspected for lead-based paint.
82. Consider proximity to public transportation.
83. Get a radon inspection.
84. Other valuable resources for homebuyers include the websites of the U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac and Ginnie Mae.
85. If the home has a fresh coat of paint make sure it is not to hide its flaws.
86. Rhode Island Housing offers money to buy and repair your home all in one loan. Call 401 457-1234 and ask about a FirstHomes100+ mortgage.
87. Take your time and think carefully about each home you see; weigh the pros and cons.
88. Always check to see if the house is in a low-lying area, in a high-risk area for natural disasters (like flooding), or in a hazardous materials area.
89. Be sure the home meets building codes.
90. Consider local zoning laws, which could affect remodeling or building an addition in the future.
91. Plan ahead for the expense, time and work of maintaining a home.
Think about whether you can make your own repairs and upkeep or will you need to hire someone.
92. Inquire about heating costs. Consider additional energy costs. Remember it often costs more to heat a standalone home.
93. Think about household items you will need to buy: lawn mower, snow shovel, tools.
94. Check to see which appliances, if any, are included in the sale and what you will need to buy.
95. Visit RILiving.com and/or HomeLocatorRI.net for free information on available homes in Rhode Island.
96. If you are considering purchasing a multi-family home, take a Landlord Tenant Education class so you will know what to expect. Call The Housing Network at 401 521-1461 to register. If you are considering purchasing a multi-family home, talk with someone who owns one.
97. Be energy wise. Consider an energy audit before you buy.
98. Understand the hazards around a home including lead paint, wiring, leaks and natural gas.
99. On closing day, do a final walk-through before you buy.
Check for any new damage? Turn on the water, flush the toilets and flick the switches. Do the appliances work? If everything is not okay, get it straightened out before you close.
100. Call Rhode Island Housing at 401 457-1234 for information about our low-rate, fixed mortgages that also offer 100 percent financing.