Because of the economic decline in the United States, home values and mortgage rates are lower than normal. Though many areas have retained their home values, most areas of the country have suffered. Foreclosure purchases and short sales have become common place in many areas of Rhode Island. Because the home prices are so low, investors have a unique opportunity to find sound investments with low interest rates.
Rhode Island Housing Values
Rhode Island’s home values have declined equally or more than the surrounding states in the area. The state suffered a 5.7% decrease in home values from last year. New Hampshire also suffered a 5.6% decrease in home values from last year as well. Massachusetts showed some growth, while Vermont exhibited a slight decline. Connecticut and New Jersey showed a decline in home values of 1.7% and 3.8%, respectively.
With the introduction of new jobs, the American public has become hopeful about the economic recovery. Even with this positive sign of growth, experts do not expect a significant change in the average American’s life financially. This will result in more foreclosures and lower interest rates. With low home prices and interest rates, the market is optimal for investors with significant capital to invest.
Various programs are becoming available across the nation to make home ownership more feasible for the average American. In Warwick, Rhode Island, the federal government is assisting people with purchasing homes, because the average median income is below $25,000 per year.
Median Home Prices Nationwide
The annual income of the typical American family is $50,221. A family with this income may afford a house with a median home value of $170,500. Lenders classify this lending ratio as 3.3. If the annual median salary is multiplied by 3.3, the product or result should reveal the home’s value. Of course, the number may be lower. However, this number is usually the maximum that banks will accept. Otherwise, the loan would be deemed high-risk. Lenders, historically, prefer the lending ratio to not exceed 2.2. Lenders, however, decided to be more compassionate with home buyers and allowed a higher ratio.
For the past 10 years, average wages for Americans have remained stagnant. The median home value, however, has remained higher than experts expected. The median home value was predicted to be $119,000. However, the actual value is nearly 30% higher than the predicted value.
Median Home Values in Rhode Island
In 2010, the median home value was $210,000. When compared to the national median average, this value is significantly higher. The home values have decreased by $90,000, since 2006. This number is representative of most of the major cities in the area.
On a 30 year fixed loan, a home buyer purchasing a home in Rhode Island may receive a 4.625% interest rate. This rate is dependent upon a minimum credit score of 720 and a 20% down payment. The home buyer may also be required to pay $5,100 in fees. A home buyer will pay less in fees, if they accept a interest rate higher than prime interest rates. This interest rate may be around 5%. With a 5% interest rate, fees may be exempt from the closing process.
Popular Places to Live in Rhode Island
Providence is one of the most popular areas to live in Rhode Island. The median home value in Providence was approximately $169,900. This city is popular because of its seaports and beachfront properties. The city is also Rhode Island’s state capital and one of the largest cities in New England.
A majority of the residents in the area are employed by the educational systems. The educational systems are comprised of: Brown University, Johnson & Wales University, Providence College, Roger Williams University, University of Rhode Island and the Rhode Island School of Design.
Textron represents a Fortune 500 company that is located in the area. The Fortune 1000 companies in Providence consist of: Nortek and GTECH. Citizens Bank and Fleet Bank are also located in Providence. The Port of Providence is responsible for cargo that includes: Petroleum, cement, chemicals, heavy machinery and scrap metal.
The hospitals also employ a significant number of people in the area. There are currently eight hospitals in the area. The Rhode Island hospital is the largest hospital in the area. The Hasbro Children’s Hospital is also in this area. Other hospitals include: Roger Williams Medical Center, St. Joseph Hospital for Specialty Care, VA Medical Center and the Alpert Medical School of Brown University.
Many of the residents of Providence are also creative. Many artists have made their homes in the area of Providence. Artists value being close to the beach and waterfront for inspiration. While the area is great for creativity, Providence also has one of the 10 highest poverty rates of cities with 100,000 or more residents.
Cranston is a part of Providence metropolitan area and is also a popular area to live. The median home values in this area area $220,000. Pawtucket and Newport are also popular areas to live within Rhode Island. The median home values for these areas are $179,900 and $399,900, respectively.
Fastest Growing Cities in Rhode Island
The fastest growing city in Rhode Island is currently Cranston. Cranston is considered to be a part of the Providence area. The city consists of 3.5 miles of shoreline along the Providence River. In 2006, Cranston was among the top “100 Best Places to Live” in 2006. The city is also considered to be one of 25 safest cities to live.
The city currently has 32,634 households, and the city continues to add more. The average household income is $67,726. This number represents a 20% increase since the year 2000. The city has grown by 5%, since 2000 and by 1%, since 2008. This city owes its growth to Swarovski Crystals and the City of Cranston, which comprise the city’s largest employers. The city’s home values remain stable through its growth.
Providence and Bristol
Providence and Bristol are also some of the fastest growing cities in Rhode Island. Providence may attribute their growth to an influx of Mexicans and Latin Americans. Jobs in health and hospitality have also caused an influx of people to the area. Bristol is popular for young families. These individuals may work in the retail industry or manufacturing. These industries are the primary reason for growth in Bristol.
Types of Mortgages Offered in Rhode Island
Rhode Island lenders offer borrowers traditional mortgages or deeds of trust. Traditional mortgages may consist of the following types of loans: Fixed Rate Mortgages, FHA Mortgages, VA Mortgages, Second Mortgages, Adjustable Rate Mortgages (ARMs) and Reverse Mortgages.
Most Rhode Island mortgage loans or deeds of trust add the “Power of Sale” clause that gives the lender the ability to conduct a non-judicial foreclosure. This means that a court proceeding is not necessary for a lender to foreclose a property. Furthermore, no legal action may be taken against the borrower.
Though the loans are non-judiciary, in most instances in Rhode Island, borrowers may have a maximum of three years to redeem a property after the foreclosure sale. Deficiency judgments are possible, but not probable with a three year redemption rule. Most deficiency lawsuits take a significant time to settle, because a borrower cannot bid on his or her foreclosed home according to Rhode Island law.
For instance, $500,000 may be borrowed for the purchase of a home in Rhode Island. If the home enters foreclosure and is sold on the market for $400,000, then the borrower is responsible for the balance. In this instance, the balance is $100,000. Through recourse laws, the lender has the may request the balance to be paid in full. Lenders may receive the help of the courts to devise a settlement with the borrower based on the amount owed. Wages may also be garnished as a means to collect the amount owed. Houses, cars, retirement or other essential items are not usually considered as collateral for payment.
Non-recourse loans only allow lenders to reclaim possession of the home and foreclose on the home. The lender may also claim any collateral offered in a manner congruent with the loan terms. However, lenders may not legally pursue the borrower for any balance due after the foreclosure sale. Lenders must assume the loss rather than the borrower. These loans are deemed high risk by lenders and are not preferred unless a higher interest rate is charged. However, in Rhode Island this type of loan is offered to borrowers.
Foreclosure Process in Rhode Island
Rhode Island has four different foreclosure procedures: Judicial foreclosure procedure, non-judicial foreclosure procedure, voluntary surrender or peaceable possession of the property.
Judicial court proceedings in Rhode Island only occur when there is no “Power of Sale” clause in the deed of trust or mortgage. Without this clause, the lender must seek the help of the courts for the right to foreclose the property. The lender must send a letter to the borrower to inform him or her of the process. The borrower may contest the letter in court. Once the borrower contests, the letter the court will give the borrower three years to redeem the property. This requires that the person pay off the entire loan amount and any interest or fees that accrued.
Once the redemption period is over, the lender may sell the house at an auction. The lender must publish the sale of the home 21 days before the foreclosure sale. The notice must be given to the borrower 20 days before it is published in the paper. The home will be sold for cash to the highest bidder. There is no minimum bid. The lender and borrower may bid on the house at this stage of the process. After the process is complete, the winning bidder must wait, in some cases, 60 days for a deficiency judgment. This is necessary before taking final possession of the home.
The non-judicial foreclosure procedure in Rhode Island must inquire with the courts to determine if a “Power of Sale” clause was included. If the course is included, the lender will follow the guidelines set forth in the clause. In the case of a voluntary surrender, the borrower will write a letter to the lender describing voluntary surrender. The affidavit must be notarized and sent to the lender. The title will then be surrendered to the lender, and the borrower must leave the property.
In a peaceful possession, the lender will take possession of the property peacefully. Two witnesses must attest that the lender is the rightful and legal owner of the home. The Certificate of Possession must be signed by the witnesses and notarized by a notary republic. The lender must retain legal possession of the home for at least a year to verify the home is legally the lender’s property. After a year, the borrower has no redemption rights in this type of foreclosure.