The state of Rhode Island has just introduced an initiative to give $17,500 in down payment money to new buyers. Yes, that’s a $17,500 grant to first-time homebuyers in Rhode Island. The reason? To ease the growing inequality in an increasingly exclusive real estate market.
U.S. homeownership seems to be turning into a privilege of the wealthy. And as Rhode Island’s governor acknowledges, Rhode Islanders who own their homes are among the lowest percentage in the nation.
Coming up with a down payment on a home is becoming too difficult, for too many. Gov. Daniel McKee describes the new initiative to assist modest-income home buyers as “an important boost for families looking to make their home in Rhode Island.”
By Tapping American Rescue Plan Act Funds, Rhode Island Can Offer a Borrower $17,500 in Grant Funds
In late January, Gov. Dan McKee announced the statewide down payment assistance grant. Qualifying homebuyers can receive $17,500, thanks to the concern of the governor and state leaders about a major hurdle for hopeful home buyers: coming up with money for the down payment.
Applicants can also apply the grant to other closing costs.
Home buyers don’t need to pay back the money to the lender or the state. That’s right: No monthly payments to send in. In contrast to homeowner assistance initiatives elsewhere, Rhode Island’s approval for funding is immediately forgivable. Otherwise, normal mortgage borrowing criteria apply.
☛ Important note: This Rhode Island grant is a major boost for hopeful home buyers who lack sufficient cash to get over the down payment hurdle. That said, a loan applicant should always ask the mortgage representative whether using a special assistance program will change the interest rate on the loan. Even a small rise in the interest rate can add up to thousands of dollars over the life of the loan.
Where is all this down payment support coming from? Federal pandemic funds. To offer help for people dealing with the unusual circumstances that arose with Covid-19, the federal treasury department has distributed money to states’ fiscal recovery funds. In this case, Rhode Island has designated $30 million from federal American Rescue Plan Act funds for Rhode Island housing affordability.
Who Can Apply? And Where Do They Start?
It’s possible to apply online for funding from Rhode Island’s statewide initiative. Applicants start with the RI Housing and Mortgage Finance Corp. site.
So, who can apply for Rhode Island mortgage assistance? A person or household that:
- Wants to buy a house or condo of their choice, located in Rhode Island.
- Has a yearly income of under $112,555 for a single buyer or couple, or under $129,438 for more than three occupants.
- Is buying a primary residence, not an investment property.
- Qualifies as a “first-time homebuyer” — that means the applicant has not owned their primary residence in three years or more, if ever.
- Has credit score of 660 or higher.
- Takes a homebuyer education class available from a state-approved or federally approved education provider. (Applicants can register and complete this study online. If there are co-borrowers applying, only one person needs to complete the class.)
Houses and condos valued as high as $546,752 for a one- to four-household property can qualify.
The borrower may apply for a loan right from the RI Housing and Mortgage Corp. Loan Center. RI Housing and Mortgage Corp. was created by state lawmakers to offer funds, education, and other support to renters, prospective buyers, and homeowners. The corporation operates with its own funds. It does not use money paid into Rhode Island by the state’s taxpayers.
Help With Down Payment and Closing Costs Is a Huge Help—But Focus on the Costs of Ownership, Too
Rhode Island’s new plan is a saving grace for many people who have waited on the sidelines, watching home prices and mortgage interest rates rise. Still, it’s important to factor in all the many costs of homeownership — not just the funds that take buyers to closing day.
What expenses need to be in the homeowner’s budget?
- Property taxes. Homeowners, whether they have families or not, pay into the local schools and other services. Typically, the buyer will pay these taxes up front, in the escrow portion of a monthly mortgage payment. It’s not unusual to see annual property taxes add up to $5,000 or more. In Rhode Island, The median annual property tax runs about $4,500.
- Homeowner’s insurance premiums. The average price of insuring a U.S. home in 2023, according to Bankrate.com, is $1,428 per year per $250,000 worth of coverage.
- The costs of repairs and upkeep. Inflation, worker shortages, and supply chain struggles all sent the cost of home repairs soaring over the past few years. On average, a freestanding home needs a yearly budget of about $4,900 for fixes and upkeep.
- Commuting costs. Of course, this is a big factor for people who rent their homes, too. But for those whose move takes them farther away from work, higher costs need to be anticipated.
Now, the other side of the coin. By buying a primary residence, a borrower makes an investment that can pay off richly in several years’ time. Real estate values tend to rise over the long run. Inflation presses property values up while the owner is paying off a mortgage.
In order to keep unexpected costs down, the easiest route to take is to select a house or condo with a relatively small footprint. For those who commute to work or meetings, a walkable location with a safe, attractive local transit network can make all the difference.
With This New Initiative, Rhode Island Sends a Message: Everyone Should Be Able to Buy a Home in the Ocean State
Working with Rhode Island, the RI Housing and Mortgage Finance Corp. is committed to helping those who want to buy, “to ensure that all people who live in Rhode Island can afford a healthy, attractive home that meets their needs.” This will surely put a lot of people on the ladder to homeownership.
To receive the deed to one’s own home is to create a stronger foundation for financial security in the future.
Above all, a home is shelter, safety, and comfort. There are few things a state can support that will help its residents more than this. Congrats to the current and future Rhode Islanders who tap into this vital opportunity.
Supporting References
Brent Addleman for The Center Square Newsletters (Franklin News Foundation): Rhode Island New Program to Benefit First-Time Homebuyers (Jan. 25, 2023).
Rhode Island Association of REALTORS® via RIRealtors.org: News – RI Statewide DPA Grant Offers a $17,500 Grant to First-Time Homebuyers (Jan. 26, 2023).
Gov. Daniel McKee, Official State of Rhode Island website: Governor McKee Announces Launch of Statewide Program to Help First-time Homebuyers (last updated Jan. 25, 2023).
Cate Deventer for Bankrate.com: Average Homeowner’s Insurance Cost in February 2023 (updated Feb. 1, 2023).
Hiranmayi Srinivasan for Better Homes & Gardens via BHG.com: Home Repair Costs Will Be Higher Next Year – Here’s What to Expect (updated Feb. 10, 2023).
Deeds.com: Buying a House to Save Money? It’s a Tried and True Method (Jun. 22, 2020).
And as linked.
Photo credits: Mohan Nannapaneni and Max Vakhtbovych, via Pexels.