The median home price in Delaware is $362,978, with an 11% annual growth rate, according to a report by Zillow. The average property value in Delaware is higher than the national average, which stands at $357,589 and is increasing at a pace of 13.5% annually.
With an increase in housing prices, it’s important that you know how to buy a house in Delaware so that you can take advantage of these opportunities. Delaware is one of the more expensive states to buy a house in the U.S.
If you're looking to purchase your first home or improve your current living situation, MoneyGeek analyzed the steps to buying a home in Delaware without falling into crippling debt.
The average cost of homes in Delaware is $362,978, an increase of 11% over last year.
Qualifying for a mortgage can be difficult, and there are many factors that impact whether or not your application will be approved. In addition, you'll need enough money for a down payment ranging from 3.5% to 20% as well as closing costs.
The key steps for buying a house in Delaware include finding the right neighborhood, starting your search with a real estate agent, determining your financing, arranging for an inspection, negotiating and closing the deal.
Choose an Ideal Location
A homebuyer’s decision about which location is best for them is often influenced by factors such as the cost of living and access to amenities. Homes are generally more affordable on the outskirts of town, where land values are lower, but the convenience may be compromised.
However, for some families who want their children to grow up around nature, an outlying area might offer peace and quiet or a slower pace of life.
A real estate agent can help homebuyers find the right home for them and can be particularly helpful for first-time buyers in Delaware. It is important to work with an experienced agent who has knowledge of the area, an understanding of zoning laws and regulations and familiarity with potential neighborhoods.
You can ask family and friends to recommend agents they have used. Check with your current mortgage broker or bank if they have agents on staff that are qualified. When interviewing agents, inquire about their experience and make sure they understand your wants and needs before agreeing to work with them.
Here are a few things to look for when choosing an agent:
- Communication style
- Negotiation skills
In Delaware, the cost of living can vary greatly depending on where you choose to live. A typical family must consider the following factors when calculating the cost of living:
Housing prices are higher near large cities or along the coast because there is more demand for property in these areas due to better amenities and resources.
When determining your budget, be sure to factor in all relevant expenses before deciding on a home location. Prospective homeowners in Delaware can use MoneyGeek’s cost of living calculator to estimate their living expenses in the state.
Homeownership is an investment, not just an expense. However, Delaware is an expensive place to live, and homebuyers may look for affordable neighborhoods within that state. There are some disadvantages of living in less costly neighborhoods. For example, there might be limited access to social amenities such as hospitals, schools and malls.
Nonetheless, one of the advantages of purchasing a home in less expensive neighborhoods is that homeownership can be more affordable. The most affordable cities in Delaware include Harrington, Bowers and Woodside.
Calculate Mortgage Rates
The best type of mortgage for you will depend on the amount and length of your loan, your credit history and whether or not you can afford to make larger payments. Before you start looking at houses, it is important to calculate what your monthly mortgage payment would be by using an online calculator to determine how much house you can afford.
Rates vary by mortgage type. For instance, homebuyers with good credit ratings may get the best mortgage rates, while those with lower scores could pay more.
When shopping for a mortgage, it's essential to find your rate and any additional expenses (e.g., loan origination fee or closing costs). After considering these factors, choosing a loan will be easy.
We pulled data from Zillow and rural development USDA to determine the average interest rates in Delaware for different 30-year mortgage types:
- Conventional home loans: 6.22%
- VA loans: 6.13 %
- USDA loans: 3.5%
- FHA loans: 6.46%
Before applying for a loan, MoneyGeek recommends that you confirm your eligibility.
Homebuyers should take the time to research mortgage rates. The amount you ultimately pay back on your loan will depend on these interest rates.
Using a mortgage calculator, you can estimate the amount of your loan and calculate monthly payments depending on the interest rate, the period of the loan and more.
To get a ballpark figure for your mortgage payment, prospective homeowners might use MoneyGeek's mortgage calculator as a starting point. To determine which option best suits your requirements, you can also utilize MoneyGeek’s FHA vs. Conventional Loan Calculator.
Considerations such as your credit rating, the amount of your down payment, your preferred location and more should all be considered when making your choice on which mortgage provider to use.
In terms of qualifications, fees and maximum loan amounts, lenders have different policies. As a result, understanding your financial status may save you valuable time.
Most mortgage companies will evaluate your application based on the following criteria:
- Credit score: Having a high credit score is important for any potential homebuyer. A good rule of thumb is that the higher your credit score, the lower the interest rate for which you qualify.
- Debt-to-income ratio: Your debt-to-income ratio is calculated by dividing all monthly debt payments (credit card bills, car payments and more) by income.
- Employment history: Lenders will want to know whether or not you’re employed with proof of earnings before approving a mortgage application.
- Down payment: The larger your down payment, the lower your monthly mortgage payment and the interest rates you can get on loans.
Prepare Down Payment Requirements
For many people, the down payment is the largest chunk of money they’ll ever have to come up with at one time. That’s why it makes sense to take a little time and research before you start looking for houses.
Ultimately, your rate and down payment amount depend on the type of mortgage you want to get.
The amount of your down payment is determined by the kind of mortgage you choose. A conventional loan usually requires a 20% down payment. Conversely, USDA and VA loans need no money down for qualified applicants. Borrowers must put down at least 3.5% on an FHA loan.
Once you know the loans you qualify for, you can calculate your down payment.
Furthermore, your down payment has a significant impact on your monthly costs. A larger down payment generally results in lower monthly payments (and vice versa). Knowing how much you need to pay ahead can help you estimate how much you should save every month.
Mortgage insurance, which protects lenders if a borrower fails to make payments, is another consideration for homebuyers. Mortgage insurance is required for FHA and USDA loans. Furthermore, applicants with less than a 20% down payment for a conventional mortgage must get mortgage insurance.
Private mortgage insurance (PMI) premiums are a regular expense that some borrowers with conventional loans have to shoulder. After a borrower has made regular payments for some time, the PMI policy may be canceled. Mortgage insurance is not required for Veterans Affairs (VA) loans, which is a perk for veterans.
Delaware offers down payment assistance programs that are funded through the Delaware State Housing Authority (DSHA). These programs are designed to provide qualified buyers with funds for their down payment and/or closing costs.
Down payments assistance programs offered by DSHA include:
- Preferred Plus: DSHA Homeownership Loan applicants may utilize Preferred Plus, a no-interest second mortgage loan of 2% to 5% of the loan amount. It may go toward closing expenses or a down payment.
- First-Time Homebuyers: First-time homebuyers in Delaware might benefit from a tax credit. Up to $2,000 per year, you may claim 35% of your mortgage interest as a special federal tax credit. In addition, the tax credit can be used with the DSHA down payment and closing cost program.
Get Pre-Approved for a Mortgage
Getting pre-approved for a mortgage is an important step. Pre-approval gives you a clear idea of how much house you can afford and is an essential part of the homebuying process. It also tells you what loan options are available and which fees will be assessed.
You should get pre-approved before looking at houses because it allows you to see all your financing options.
The list of documents needed for your loan application will depend on the mortgage type you are applying for. Generally, some of the documents that you may need include:
- Social Security card
- Income verification (pay stubs, W-2 form)
- Bank statements
- Credit report
- Military discharge papers (for veterans)
- Photo ID
- Employment verification
It is best to check with your lender to see whether any additional paperwork is required. Based on the specifics of your loan application and your existing credit standing, they may need further documents from you.
The pre-approval process for a loan is an essential part of the homebuying process. It speeds up the procedure and allows ample time to acquire the proper documents for your loan. Becoming prequalified for a mortgage can take up to two weeks.
Filling out the papers and having your credit examined often take 30 minutes. Depending on the lender, it may be valid for up to 30 to 60 days after approval.
This time frame allows you to complete other aspects of your home search, such as identifying your ideal home or determining which properties best meet your needs. Additionally, it gives you time to shop around for lenders to select one with favorable terms and rates.
You'll need pre-approval to purchase a home. While it’s not an offer on the property, a pre-approval letter shows your lender that you are serious about purchasing a house and have the necessary income and credit history for them to accept the loan.
You may get as many of these letters as you like, but it's crucial to be aware that certain lenders do credit checks that impact your score.
Depending on the lender, a pre-approval is available for 30 to 90 days. During this time, you may search for the ideal home before committing, and you can compare interest rates, points, fees and costs from other lenders.
Conduct a Home Inspection
Home inspections are one of the most important steps you can take during the homebuying process. It is vital that you get a professional home inspector who will tell you about all aspects of the property.
This way, you’ll be able to make an informed decision as to if a house is worth purchasing. The inspection will also reveal any hidden problems with the house and tell you what needs to be fixed before moving forward with the purchase.
When you’re looking for the perfect home, one of the most important things you can do is hire an inspector. Licensed inspectors are trained professionals who will thoroughly assess your potential new property and give you their expert opinion on whether or not it's worth buying. It may seem like a lot of money upfront, but it'll be worth it in the long run as they'll help ensure that your investment is sound.
Things to inspect include:
- Electrical work (including outlets)
- Heating and cooling system (make sure ducts have been cleaned)
- Fireplaces (make sure gas pipes aren't connected)
If any repairs need to be made after the inspection has been completed, use licensed contractors.
Although it isn't always necessary, certain Delaware cities or counties may insist that you have a house inspection before you buy a home. If this is the case for your home, contact an inspector with experience in the area and explain what type of dwelling you're buying.
You'll need to know if the city you are considering buying a home in has any specific building regulations. An inspector can help you figure this out.
An appraisal is an estimate of the property’s value based on its current condition. An appraiser can determine the market value by researching similar properties that have sold or are currently for sale. The appraiser will then compare your home to those and offer their opinion of how much it would sell for if it was offered on the open market today.
An appraisal considers everything from physical features like age, size and condition to things like location and the availability of other comparable homes nearby. The final figure should be reasonably close to what you could expect to get if you were to put your home up for sale today.
Close Your Mortgage Loan
The closing process is the final step before you take ownership of your new home. This is when you will sign all the documents that legally transfer ownership of the property to you, pay for any fees associated with the transaction and close your mortgage loan.
You should also be prepared for other expenses, like an appraisal, inspection and document preparation fees as well as any additional costs associated with securing homeowners insurance.
Before you sign anything, review the paperwork. Make sure everything is accurate and that you’re comfortable with the terms of the contract. Ask questions if you need clarification on anything.
Documents to sign include the following:
- Purchase agreement
- Closing disclosure, note (if applicable)
- Deed (if applicable)
- Home warranty plan agreement
- Home inspection report (if necessary)
- Homeowner’s insurance certificate
- Mortgage pre-approval letter or commitment letter
Be aware that some mortgages require escrow accounts to be set up for property taxes and homeowners insurance before closing can occur.
Closing costs are the fees associated with buying a home. They are usually paid at the closing table and can include, but are not limited to:
- Mortgage lender fee: This is a flat fee charged by the lender for processing your loan.
- Origination fee: This is the lender’s fee for processing the paperwork.
- Appraisal fee: This is a fee paid to have your house appraised.
- Attorney’s fee: These are fees charged by an attorney who handles legal documents.
- Escrow: An escrow fee is an amount of money that the buyer pays the lender at closing. The escrow fee is used for the cost of title searches and insurance.
Buying a house in Delaware can be a daunting task. You will have to take many steps, but with the right information, it becomes much easier. One of the first things you need to do is choose a location and make sure you have enough money for a down payment. You may also need to get pre-approved for your loan before you begin looking at homes.
Be sure that your credit score is in good standing and that you can afford any mortgage payments on top of your other expenses and bills. After completing all the required steps, meet with your lender or broker to finalize your home purchase.
You should review all documents thoroughly to ensure they are not missing anything and sign them where indicated. Once signed, you should return them immediately so you can close on the home.
Delaware Homebuying Details
When it comes to buying a house in Delaware, keep in mind that the median prices are higher than the national average. The state also has its own set of laws and regulations that might be overwhelming, especially for first-time buyers.
Consider your options, evaluate different mortgage types and shop for the best rates. The more you know about the homebuying process before you start, the less likely you will run into unexpected problems.
For qualifying buyers, DSHA provides a 30-year fixed-rate loan with interest rates at or below the typical market rate. The loans are made and offered through typical mortgage programs such as conventional, VA, FHA and USDA loans. Furthermore, whether you are a first-time buyer or a previous homeowner makes no difference.
FHA's rehabilitation and repair program might be used with a DSHA second mortgage to cover closing costs and provide down payment assistance. The 203(K) scheme combines the acquisition and remodeling costs into a single mortgage. It enables purchasers to acquire property and make renovations after the closure.
Frequently Asked Questions About Buying a Home in Delaware
MoneyGeek answered the most frequently asked questions about buying a house in Delaware.
- Kiss Your Landlord Goodbye. "Help for Homebuyers." Accessed October 24, 2022.
- Tax Foundation. "Tax in Delaware." Accessed October 21, 2022.
- U.S. Department of Agriculture. "Single Family Housing Direct Home Loans | Rural Development." Accessed October 24, 2022.
- U.S. Department of Housing and Urban Development. "Homeownership Assistance: Delaware." Accessed October 24, 2022.
- Zillow. "Compare Today’s Mortgage Rates in Delaware." Accessed November 22, 2022.
- Zillow. "Delaware Home Values." Accessed November 22, 2022.
- Zillow. "United States Home Values." Accessed November 22, 2022.