Delaware First-Time Home Buying Assistance Programs for 2024

Delaware First-Time Home Buying Guide

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    By Kenny Zhu

    (Last Updated – 03/2024)

    If you’re thinking of buying a home in Delaware, you will likely be interested in knowing that for qualified buyers, there can be help with your down payment, mortgage, and closing costs.

    Owning a home in Delaware can currently be somewhat more expensive than the national average. The current home value is, on average, $369,624 (up 4.7% year over year) vs. the national average of $342,941.

    If you are of lower or middle income, however, the Delaware State Housing Authority offers a number of homebuyer assistance programs that can help you make ends meet. The help comes in the form of home loans, down payment assistance, and tax credits. There are also other programs at the federal level that may help you purchase a property. Read on for the details.

    2 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 may be underwritten at rates that are either at or below market, helping homebuyers afford a house.

    “The “Welcome Home” program includes:

    •   Smart Start First Mortgage: Unassisted first mortgage.

    •   Home Sweet Home: Limited fund for up to $12,000 for down payment and closing costs in a home used as a primary residence in a property with a maximum sales price of $285,000. This assistance is in the form of a loan that is forgivable after 10 years.

    •   Delaware Diamonds: Limited fund for up to $10,000 for down payment and closing costs, forgivable after 10 years. Qualifying applicants will work in certain professions, such as healthcare, first responders, and active military and veterans.

    •   First State Home Loan: 3% of the final loan amount for down payment and closing costs.

    Learn more about these programs on the DSHA site .

    2. 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 can learn more on the DSHA website .

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    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: Guide for First-Time Homebuyers

    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 often also need to complete a housing counseling course.

    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 can be found on the DSHA website, as noted above.

    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 typically take 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. Here’s more about how the program works:

    •   Homebuyers choose from a list of approved lenders that participate in the FHA loan program.

    •   Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers, who typically need FICO® credit scores of 580 or higher. Those with low credit scores, in the range of 500 to 579, must put at least 10% down.

    •   In addition to examining your credit score, lenders will look at your debt-to-income ratio (DTI, your monthly debt payments compared with your monthly gross income). FHA loans allow a DTI ratio of up to 57% in some cases, vs. a typical 45% to 50% maximum for a conventional loan.

    •   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 these loans, including FHA loans for refinance and rehab of properties, by reading up on FHA requirements, loan limits, and rates.

    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 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 family members may apply for loans backed by the Department of Veterans Affairs.

    •   VA loans, which can be used to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment.

    •   Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    •   VA loans do not require private mortgage insurance (PMI) for borrowers who make a down payment of less than 20%.

    •   VA loans can have more flexible credit score requirements. In some cases, even those who have previously been in foreclosure or bankruptcy can qualify.

    Borrowers applying for a VA loan will need a Certificate of Eligibility from the VA so make sure to review a guide to qualifying for a VA loan as a first step in the process.

    💡 Quick Tip: Active duty service members who have served for at least 90 consecutive days are eligible for a VA loan. But so are many veterans, surviving spouses, and National Guard and Reserves members. It’s worth exploring with an online VA loan application because the low interest rates and other advantages of this loan can’t be beat.†

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. While the VA doesn’t require mortgage insurance, it does charge a funding fee. For more details, contact [email protected].

    US 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.

    The USDA also directly issues loans to low- and very low-income borrowers. For loan basics and income and property eligibility, head to this USDA site .

    HUD Good Neighbor Next Door Program

    If you are a police officer, firefighter, emergency medical technician, or teachers, you may qualify for these mortgages in the areas you 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.

    Delaware First-Time Homebuyer Stats for 2024

    Here are some stats about home buying in Delaware:

    •   Median home sales price in Delaware: $369,624

    •   3% down payment: $11,088.72

    •   20% down payment: $73,924.80

    •   Average credit score in Delaware: 714

    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 can 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 if 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 you to borrow from a 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 to 25 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, but you may want to do the math to be sure.

    •  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

    Qualified first-time homebuyers in Delaware can leverage homebuyer assistance programs to help with the down payment, mortgage, and closing costs. These may be offered by the state or the federal government and can make homeownership more affordable. It’s also worthwhile to compare what these and offers from other lenders to find the right fit for your situation.

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    Should I take first-time homebuyer classes?

    You will likely learn good information, which can be key to a successful home-buying experience, especially for newcomers. Plus, these 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 loan will have 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 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 35.

    Photo credit: iStock/DenisTangneyJr

    *SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

    †Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

    ¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

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