Delaware is known for corporate headquarters and ocean beaches. Compared to expensive housing markets in New York and Washington, D.C., this mid-Atlantic state combines below-average home prices with above-average wages to create something of an oasis of affordability. This page will walk you through the housing and mortgage market in Delaware, with a focus on programs for first-time buyers. Read on for a step-by-step guide to getting a mortgage in Delaware.
Check Mortgage Rates in Delaware
When it comes to determining your mortgage rate, you are the most crucial factor. Your credit score goes a long way toward establishing your interest rate. But factors specific to Delaware also affect the mortgage market and how much you’ll pay.
The foreclosure climate poses one negative. Delaware is a so-called judicial foreclosure state, where lenders must endure a long court process to repossess a home. Typically, foreclosure rates are higher in judicial foreclosure states, and Delaware is no different. Delaware’s foreclosure rate of 1.8 percent was above the national average in April 2016, according to CoreLogic.
Fortunately, though, Delaware is a banking hub. So, dozens of lenders will vie for your business. For more about the financial forces affecting loans, see MoneyGeek’s guide to mortgage rates.
First-Timer? Tap into Delaware’s Loan Programs
To help first-time buyers achieve the American dream, the Delaware State Housing Authority offers the Welcome Home loan program. The basic loan for first-time buyers comes with a 3.75 percent rate for conventional borrowers and 3.25 percent for borrowers with FHA, VA or USDA loans.
Delaware also offers a Second Mortgage Assistance Loan at a higher interest rate. For buyers in most parts of Delaware, the state limits household income to $97,900 and the loan amount to $417,000. However, if you buy in a neighborhood recognized as a “target area,” income and loan limits are higher and the first-time buyer requirement is waived. A repeat buyer who buys a home in a target area can apply for the Delaware First-Time Buyer Tax Credit. Buyers should contact one of the 30 or so lenders who participate in the programs to find out if you qualify.
In 2015, Delaware sweetened the incentives with two new state programs. The Paid Mortgage Insurance program lowers monthly payments by covering mortgage insurance premiums for buyers who put less than 20 percent down. Borrowers will have to pay a higher interest rate, but even with the higher rate, buyers of a $186,000 house would save $70 a month.
Delaware also added the Home Purchase Rehab program, which lets buyers combine the price of the home and the cost of repairs up to $35,000 into one mortgage. See MoneyGeek’s guide to resources for first-time buyers for more information about these types of programs.
Financial Help in Delaware for First-Time Buyers
For information about low-interest loan programs and down payment assistance, check out the tool below:
Find a Housing Counselor in Delaware
Delaware: An Oasis of Affordability
Delaware is generally an affordable market, thanks to modest home prices and a strong base of jobs in the corporate and financial sectors. In the Wilmington metro area, 86 percent of homes sold in the first quarter of 2016 were affordable to a median-income family, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. That’s based on a median home price of $193,000 for all houses and condos and a median family income of $80,400. Homes also are affordable in Dover. The combination of a median price of $189,000 and median family income of $62,900 means 87.7 percent of homes sold in the first three months of the year were within reach of a typical family.
How Delaware Mortgage Rates and Home Prices Affect Monthly Payments
|Metro Area||Estimated Monthly Mortgage Payment*||Q1 2016 (Change from Previous Year)||2015 Median Home Price||2014||2013|
Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today’s rates.
How Much You Can Borrow in Delaware?
Delaware’s modest home prices are reflected in its jumbo loan limits. In all three of Delaware’s counties, the loan limit is $417,000. Borrowing more requires a jumbo loan, which often carries higher rates and stricter underwriting standards than conforming loans. The $417,000 limit isn’t unusual – it’s the prevailing cut-off for most of the nation. FHA loan limits vary more. They’re $379,500 in New Castle County, $316,250 in Sussex County and $271,050 in Kent County. For more details, check here:
Buying a Home in Delaware: The Experts’ Advice
Kevin Jornlin is regional manager at Supreme Lending in Wilmington. A longtime mortgage banker, he’s president of the Delaware Mortgage Bankers Association for 2016.
Eric Braunstein is a Realtor at Keller Williams in Wilmington. A former U.S. Navy officer, he was the 2015 president of the Delaware Association of Realtors.
How has Delaware’s housing market changed over the past decade?
Delaware has traditionally been one of the most stable housing markets in the country, mainly because of its strong corporate environment. The Du Pont Company has been a big player here for many years. Because our employment has been so stable, we usually weather the storms pretty well. But this time, it was a little different. Du Pont has pulled back, and the banks took a hit. It’s been a challenge, up until late 2015. That’s when the market really started coming back.
If you bought a house in 2000 and didn’t refinance, you’re way ahead of where you started. Now, the market is very, very positive. Sales are way up over the past year. Appreciation has leveled off a bit.
What advice would you give a first-time buyer?
The biggest thing for them right now is cash. For down payment assistance, there’s a state program and some county programs that are out there. And there are some internal programs that banks and mortgage lenders have for first-time buyers. Do your research with lenders, and get prequalified. Talk to a lender before you go looking for a house. The mortgage is maybe not as exciting as the color of the carpet and the amenities of the kitchen, but it’s the most important thing.
The biggest advice I’m giving is a simple number: 3.5 percent. Wow. I had a mortgage in the 1980s for 18 percent. Low mortgage rates by themselves aren’t a reason to buy a house, but I believe some time in the future, people are going to kick themselves for not taking this opportunity.
What’s the biggest challenge for buyers?
The biggest challenge on the lending side is folks with damaged credit. We’ve seen the pendulum swing so far that a lot of those folks are being thrown out with the bathwater.
Getting a mortgage is a very challenging process. Make sure you work with a qualified mortgage professional.
What makes Delaware’s housing market unique?
Delaware has no sales tax, so we’re getting a lot of folks coming in from other states where there’s high sales tax. In some areas, the combination of no sales tax and low property taxes is really driving relocation activity.
Low taxes. We do have a real estate transfer tax, but our property taxes are way lower. And we don’t have a state sales tax. I don’t see that ever changing.
How Delaware’s Closing Costs Compare
Delaware has no state sales tax, but it does collect a steep toll on real estate sales. The 3 percent transfer tax is the highest in the country and is split evenly between buyer and seller. So if you pay $200,000 for a home, you’ll need to cough up $3,000 in transfer taxes at closing, in addition to other costs. Certain areas give first-time buyers a break, and waive half the fee, cutting it to 0.75 percent.
Aside from that, Delaware’s closing costs are about average, according to Bankrate’s survey of closing costs in 2015. A borrower taking a $200,000 mortgage will pay an average of $1,828 in origination fees and third-party fees. (The cheapest state was Ohio at $1,613, the most expensive Hawaii a $2,163, Bankrate says.) The average appraisal fee in Delaware is an affordable $415, but the survey fee of $675 is high. See MoneyGeek’s guide to closing costs for more about this often-overlooked expense.
Average Closing Costs in Delaware
Source: Bankrate’s 2015 survey of closing costs.
Refinancing a Mortgage in Delaware
Rock-bottom mortgage rates mean it’s an opportune time to refinance a home loan. If your home has gained value in recent years, this might be the moment to lock in a lower rate or to dump your private mortgage insurance. The savings can be compelling. Say you have a $160,000 loan at 5 percent interest, for a payment of $859 a month. Borrowing the same amount at a 3.5 percent rate will cut your payment to $718 a month.
However, Delaware’s home values haven’t exactly soared in recent years, which might complicate your refinancing plans. The state’s home price index rose just 7.7 percent from early 2011 to early 2016, trailing the national appreciation rate of 27.2 percent, according to the Federal Housing Finance Agency’s home price index. If slow price growth has left you with little equity in your home, it might be difficult for you to refinance.
Delaware’s refinancing process also has a few quirks. There’s no recording tax, and title insurance tends to be low. However, as an “attorney state,” Delaware requires a lawyer to conduct the closing. The fee for that service is typically $300 to $500. MoneyGeek’s guide to refinancing your mortgage contains more details about refis.
Other Delaware Mortgage Resources
This 12-page document from the state government outlines the basics, including the transfer tax.
Delaware offers below-market interest rates for first-time buyers. This page includes contact information for participating lenders.
You might be eligible for a federal income tax credit worth up to $2,000 a year. Check here for details.
The state offers a break on mortgage rates to educators who are members of the Delaware Talent Cooperative.
If you don’t mind being an urban pioneer, you might be able to score a deal on a house in a moderate-income area.
Facing foreclosure? This state program offers no-interest loans for up to $30,000.
This initiative helps Wilmington homeowners who are 62 or older and face foreclosure because of unpaid property taxes or water and sewer bills. They may qualify for a grant of up to $3,000.
This nonprofit builds affordable homes and helps low-income families achieve homeownership.
The nonprofit National Council on Agricultural Life & Labor Research Fund hosts a variety of homeownership classes and counseling sessions.
The school offers faculty and professional staff $5,000 to buy a home.