Delaware First-Time Home Buying Assistance Programs for 2022

Delaware First-Time Home Buying Guide

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    By Kenny Zhu

    (Last Updated – 06/2022)

    By May 2022, the median home price in Delaware had risen by 18.6% year-over-year, according to Redfin. During that same period, the average mortgage rate for a 30-year home loan rose from 2.94% to 5.3%.

    With over 66% of sold homes selling above listing price, it’s no secret that 2022 will be another tough year for first-time homebuyers in Delaware.

    Don’t fret! The Delaware State Housing Authority offers a number of homebuyer assistance programs. The help comes in the form of home loans, down payment assistance, and tax credits. We’ll run through each option below and how to qualify.

    3 Delaware Programs for First-Time Homebuyers

    The Delaware State Housing Authority (DSHA) offers homebuyer assistance programs to encourage homeownership across the First State.

    The programs are for both first-time homebuyers — generally people who have not owned a principal residence in the past three years — and repeat homebuyers.

    Some have qualifying income or location requirements. You’ll also need to ensure that you’re obtaining your mortgage through a participating DSHA-approved lender in order to be eligible for any of the benefits.

    1. DSHA Homeownership Loans

    DSHA offers 30-year fixed-rate mortgages through conventional, FHA, VA, and USDA loan programs for first-time and repeat homebuyers alike. The mortgages are underwritten at rates that are either at or below market, making them cost-effective for homebuyers.

    “Homeownership Loan” seekers can also apply for Preferred Plus assistance.

    2. DSHA Preferred Plus Payment Assistance

    Preferred Plus assistance allows applicants to obtain a direct loan of 2% to 5% of their total loan amount to help cover the cost of their down payment or closing costs.

    The loan takes the form of a no-interest second mortgage, which must be repaid should the borrower sell, refinance, or otherwise cease using the property as a primary residence.

    3. Delaware First-Time Homebuyer Tax Credit

    The state of Delaware allows eligible first-time homebuyers to claim up to 35% of their annual mortgage interest paid in the form of a federal tax credit of up to $2,000 a year.

    Unlike the home loans and payment assistance programs above, the mortgage credit certificate typically requires you to qualify as a first-time homebuyer.

    You’ll also need to fall under the maximum income and property values listed for your county and property type. We’ve listed the caps in the tables below.

    Income Requirements by County

    County Target/Non-target 1-2 Person Household 3+ Person Household
    New Castle Non-target $94,500 $108,675
    New Castle Target $113,400 $132,300
    Kent Non-target $83,000 $95,450
    Kent Target $99,600 $116,200
    Sussex Non-target $83,000 $95,450
    Sussex Target $99,600 $116,200

    Property Requirements by County

    County 1-Unit 2-Unit 3-Unit 4-Unit
    New Castle $377,540 $483,295 $584,235 $726,059
    Kent $311,979 $399,448 $482,814 $600,037
    Sussex $311,979 $399,448 $482,814 $600,037

    Regarding the distinction between target and non-target areas, Delaware allows higher income and waives the need to be a first-time homebuyer if you’re buying a home in a designated target area.

    You can verify whether your home falls within a target area by checking with your lender or on the DSHA’s website.

    Who Is Considered a First-Time Homebuyer in Delaware?

    The Department of Housing and Urban Development (HUD) defines a first-time homebuyer as someone who hasn’t owned a principal residence within the past three years (including a spouse), a single parent (who may have owned a house with a former spouse), and a displaced homemaker who has only owned a house with a spouse.

    Remember that those who aren’t first-time homebuyers may still qualify for homebuyer loans and down payment assistance through the DSHA. Make sure to check the specific requirements of your program to confirm.

    Recommended: The SoFi Guide to First-Time Home Buying

    How to Apply to Delaware Programs for First-Time Homebuyers

    To qualify for one of DSHA’s Homeownership Loans, you’ll need to apply through a participating lender and meet all of the income, credit, and target location requirements.

    Step 1: Verify That You Meet Income and Credit Requirements

    To qualify for DSHA homebuyer benefits, you’ll need to have a credit score of 620 or higher and an annual household income at or below the limits in the table below.

    Qualifying first-time homebuyers who have a credit score of 659 or below will also need to complete a housing counseling course.

    County 1-2 Person Household 3+ Person Household
    New Castle $113,400 $141,750
    Kent $99,600 $124,500
    Sussex $99,600 $124,500

    Step 2: Apply for a Mortgage Through a Participating Lender

    To obtain DSHA homebuyer benefits, you will need to apply for a mortgage directly through a lender that participates in the program. This applies regardless of whether you’re trying to obtain a conventional, VA, USDA, or FHA home loan.

    Participating DSHA lenders and their contact details for Kent, New Castle, and Sussex counties can be found on the DSHA website.

    Keep in mind that even though you may qualify under the housing authority’s minimum requirements, a lender may issue its own set of underwriting requirements.

    Step 3: Find a Home and Finalize Your Mortgage Application

    Once you submit an offer that’s accepted by the seller, you’ll need to contact your lender directly and provide the details of the property you wish to purchase so the lender can complete the underwriting process.

    It’s essential that you remain responsive during this stage of the process to ensure that everything goes according to plan. Your loan officer will coordinate with you and your real estate agent to confirm an appropriate closing date, ensure that all necessary reviews are completed, and validate your DSHA benefits.

    It can be anywhere from 30 to 45 days from the time your offer is accepted to closing day. The timeline may vary, though, based on the complexity of your deal.

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO® credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

    Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

    FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. You can learn more about FHA loans in general and FHA lending limits in Delaware by county on the FHA website.

    Freddie Mac Home Possible® Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Fannie Mae HomeReady® Mortgages

    Fannie Mae, or formally, the Federal National Mortgage Association, is also a publicly traded government-sponsored enterprise that dates back to the Great Depression.

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Unlike an FHA loan, the 97 LTV loan has no upfront mortgage insurance fee and does have cancellable mortgage insurance. The loan is for just one-unit single-family homes, co-ops, condos, and planned unit developments.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and eligible surviving spouses may apply for loans backed by the Department of Veterans Affairs. VA loans , to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. For most applicants, there is a one-time funding fee that can be rolled into the mortgage.

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment mortgages to buy, improve, or build a home on federal trust land. The VA is the mortgage lender on NADLs. The funding fee applies.

    U.S. Department of Agriculture (USDA) Loans

    No down payment is required on these loans that are guaranteed by the Department of Agriculture in specified areas. Borrowers must meet USDA income requirements, and will pay an upfront guarantee fee and an annual fee that serves as mortgage insurance. Eligible properties are listed by region on the
    USDA website .

    HUD Good Neighbor Next Door Program

    This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

    HUD offers more information on programs designed for homebuyer affordability in Delaware on its
    website .

    Delaware First-Time Homebuyer Stats for 2022

    The Delaware Association of Realtors® publishes monthly housing statistics about the Delaware Housing Market. Here’s a breakdown of some of the latest data points and their year-over-year change, as of May 2022.

             
    2021 2022 Year-over-year
    Avereage Home Price $346,748 $396,318 +14.39%
    Number of Homes Sold 1,425 1,369 -3.9%
    Active inventory 1,448 1,660 +14.64%
    New listings 1,982 1,745 -11.95%
    Average Days on Market 27 20 -27.92%

    Additional Financing Tips for First-Time Homebuyers

    In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    While today’s real estate market might seem intimidating, first-time homebuyers in Delaware can leverage homebuyer assistance programs, though other good opportunities exist.

    Make your dream of being a homeowner come true with SoFi’s competitive mortgage rates and down payments as low as 3% for qualifying first-time homebuyers.

    View your rate


    FAQ

    Should I take first-time homebuyer classes?

    Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers, who can easily be overwhelmed by the jargon, technicalities, and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for some government-sponsored loan programs.

    Check with your lender, realtor, and local housing advocacy groups for programs in your area.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications. That’s why it’s important to take all possible steps to improve your credit standing before you go house hunting.

    Is there a first-time homebuyer tax credit in Delaware?

    Yes, Delaware allows first-time homebuyers to claim a tax credit of up to 35% of their annual mortgage interest, up to a $2,000 per year, reducing federal taxes owed.

    Is there a first-time veteran homebuyer assistance program in Delaware?

    First-time veteran homebuyers qualify for the same homebuyer assistance programs as other first-time homebuyers in Delaware.

    The DSHA does allow VA loans to be issued directly through its loan program. This allows veterans to take advantage of both first-time homebuyer and VA benefits.

    What credit score do I need for first-time homebuyer assistance in Delaware?

    The minimum credit score required for applicants to DSHA’s loans is 620.

    What is the average age of first-time homebuyers in Delaware?

    A state-specific age is hard to pinpoint, but the average age of a first-time homebuyer in the United States is 33, according to a 2021 study conducted by the National Association of Realtors.


    Photo credit: iStock/DenisTangneyJr
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