The process of buying a home in Rhode Island can feel
overwhelming if not prepared for the process. Often times it’s exciting during
the hunt to explore properties and imagine yourself in a new home. Where it can
become especially stressful is at the point of the actual purchase. It’s
important to be prepared for how much it may cost to make a home purchase, so
here we’re going to explore Closing Costs. Apart from the downpayment, closing
costs account for 2-5% of the final price.
Not including your downpayment on a home, closing costs
usually range between 2-5% of the purchase price. This means if an average home
in Rhode Island costs between $300,000-$400,000, you can expect to pay between
$2,600-$4600 in closing costs. Of course, this amount depends on the location
of the property, municipal rates and more. The text provides in-depth insight
into closing costs when purchasing a home in Rhode Island.
What are Closing Costs?
Let’s first understand what Closing Costs are. Closing
costs are fees paid to companies and entities when purchasing a home. There are
closing costs charged to both the buyer and the seller to compensate the
parties involved in handling, funding, and insuring the sale.
These typically include attorney fees, appraisal fees,
escrow fees, home inspections, property taxes, application fees, recording
fees, homeowner’s insurance and title insurance.
Closing costs are not included in the listed purchase
price of a home and can be a surprise to many homebuyers.
Lawyers are used to discharge the title and mortgage
of a property. Typically, the company issuing the title hires the attorney,
otherwise this cost may fall on the seller. Some buyers prefer hiring an
attorney to represent them throughout the buying process, and these attorneys
will charge hourly rates.
Appraisal fees are incurred when hiring an appraiser to
assess the market value of the property. Lenders require appraisals before
issuing a mortgage to protect their investment. If the buyer were to default on
the mortgage payments and the property is worth less than the market price, the
lender can’t sell the property to recover the balance of the loan. Appraisals
typically cost between $300-$500.
Transfer taxes are taxes levied on the transfer of title
from the seller to the buyer. It may also be called a documentary transfer tax,
State Stamp Tax, Mortgage tax, or stamp tax. Sellers are usually responsible
for this cost unless agreed otherwise.
In Rhode Island, transfer taxes cost $2.30 per $500 of the
Escrow fees are charged by a Title company for holding the
buyer’s money and the signed deed until the buyer and the seller have completed
the entire closing process. This amount varies depending on the title company,
and the seller is typically responsible for this cost.
A Commitment Fee is paid to the lender for committing to
extend the loan.
Property Tax is assessed by the county and the amount
varies based on the location of the property. Buyers usually need to pay this
cost within 60 days of the purchase of the property.
Buyers should also be ready to pay for outstanding utility
bills, or costs associated with transferring utility services from the seller
to the buyer. The amount may be prorated up to the date of sale to include the
current use. The seller needs to communicate the close of the sale so the
utility company can calculate the amount owed during that month.
Most properties on Rhode Island are located near a body of
water. As such, the buyer needs to pay a flood certification fee to find out if
the property is located in the flood zone. The fee is less than $15, and the
lender may demand that you have a flood insurance policy.
Private Mortgage Insurance
If your downpayment is less than 20%, you will be charged
PMI, which stands for Private Mortgage Insurance. This insurance protects the
lender in case the buyer defaults on mortgage payments and ends up foreclosing
the home. The plan typically costs 0.3-0.5% of the loan.
Tips to Help You Save on Closing Costs
Now that you have a better understanding of what it costs
to purchase a home, you may consider ways to help save on this cost. For
example, you may choose to have your real estate agent negotiate with the
seller to have them pay some of the non-recurring fees, like the brokerage fee,
appraisal, flood certification fees, and possibly credit checks.
Another option may include qualifying for programs that
help homeowners struggling with homeownership costs. One such program is
includes the Housing
Network of Rhode Island. This
association offers a Down Payment and Closing Cost Assistance Program that may
provide up to $3,000 in grants.