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First-Time Home Buyer Programs in Delaware for 2018

Liz Smith
Delaware first-time home buyer programs

With just three counties and plenty of historic charm and seaside beauty, Delaware ranks well in SmartAsset’s top 10 states for the middle class. So if you’re hoping to settle in Sussex, New Castle or Kent county, be sure to check out the federal and state first-time home buyer programs, down payment assistance systems and tax credits available to Delaware residents. If you need some help deciding which one is right for you, the SmartAsset financial advisor matching tool can connect you with as many as three nearby financial advisors who can help narrow things down.

Federal First-Time Home Buyer ProgramsFHA Loans Pros – Low down payment
– Flexible credit approval Cons – Larger down payment needed for those with a credit score lower than 580 Eligibility – Credit score of at least 500
– Must have 3.5% down payment Best For – Any borrower that lacks sufficient funds for a down payment

The Federal Housing Administration backs FHA loans, which are great for potential home buyers without enough money to afford the upfront costs. Rather than a standard 20% down payment, FHA loans only require you to put 3.5% of your home’s value down.

To receive this perk in its full glory, you must have a credit score of at least 580. If your credit score is between 500 and 580, you’ll need to make a down payment closer to 10%. Considering that is half the size of a standard down payment, it is still an improvement. In fact, even with the credit score requirement, an FHA loan is one of the easiest federal programs to qualify for.

VA Loans Pros – Up to 100% loan coverage
– No private mortgage insurance requirement
– Lower closing costs Cons – Must pay a VA funding fee
– Application process can be drawn out Eligibility – Must be a current or former military member, spouse, or other beneficiary
– Credit score of at least 620 Best For – Veterans without little monthly income and small amount of savings

The Department of Veterans Affairs insures VA loans, which help veterans that can’t afford a typical 20% down payment. In fact, VA loans do not require any sort of down payment. Plus, since the government will back part of your risk, you won’t need the usually obligatory private mortgage insurance (PMI).

To cut costs even further, the VA usually offers lower closing costs than a home buyer would find with a conventional or other mortgage. In most cases, veterans need a credit score of 620 or higher to qualify. You also need to pay a VA funding fee, which ranges anywhere from 1.25% to 2.4% of your home’s value depending on whether or not you choose to pay a down payment.

USDA Loans Pros – No down payment
– Flexible credit approval Cons – Not available if you qualify for a conventional mortgage Eligibility – Income within 115% of the adjusted U.S. median
– Home must be in an eligible area Best For – Low- to mid-income borrowers willing to live in rural or semi-rural areas

Legally known as a “Section 502 Single Family Housing Guaranteed Loan Program,” USDA mortgages are backed by the United States Department of Agriculture (USDA). They were created to attract new home buyers to less populous areas in the country. To qualify, you must earn within 115% of the U.S. median income.

Most borrowers won’t have to pay any sort of down payment to secure a USDA loan. If your credit score falls a bit lower on the FICO® scale, you may have to pay a down payment of roughly 10%. This is still a considerable discount from the typical 20%. Keep in mind that if you can qualify for a conventional mortgage, you can’t get a USDA loan.

Good Neighbor Next Door Program Pros – 50% flat reduction in home cost Cons – Only available in select areas
– Only available to certain professionals Eligibility – Must be a police officer, firefighter, emergency medical technician or pre-k through 12th grade teacher
– Must agree to remain in the home for at least three years Best For – Public servants with limited savings

The Good Neighbor Next Door Program is only available for emergency personnel and pre-K through 12th-grade teachers. More of a discount than a loan, it offers a flat 50% reduction on the home’s sticker price. Participants are encouraged to get a conventional, VA or FHA mortgage to pay for the home, but they can also pay cash.

In order to qualify, your home must be located within what the Department of Housing and Urban Development (HUD) determines a “revitalization area.” You must also agree to make the home your primary residence for at least three years. So long as you stick around, you can sell the home and hold onto any equity and profit once the three years are up.

Fannie Mae/Freddie Mac Pros – Low down payment
– Various loan styles available
– No credit required for certain loans Cons – Higher interest rates than other federal programs Eligibility – Must earn within location-specific income requirements Best For – Any borrower that doesn’t qualify for other federal programs, but needs a discount on the upfront costs of homeownership

Over the years, the federal government created their own mortgage lenders known as Freddie Mac and Fannie Mae. While technically two different entities, they offer very similar programs for first-time home buyers.

There are two versions of Freddie Mac Home Possible® mortgages, “Home Possible: 95% LTV” and “Home Possible Advantage: 97% LTV.” LTV stands for loan-to-value, meaning down payments are just 5% and 3%, respectively. These loans can be for 15 or 30 years an carry 5/5, 5/1, 7/1, or 10/1 adjustable-rate terms. You don’t even need credit history to qualify for a Home Possible loan. Home Possible Advantage mortgage is essentially the same, but it has credit requirements and carries fixed interest rates.

The HomeReady® loan from Fannie Mae also requires down payments as low as 3%. Borrowers need a credit score of 620 or above to qualify, though. You must also earn an income at or near the U.S. median. With both Home Possible® and HomeReady® loans, you must get private mortgage insurance by the time of purchase, though you can cancel it once you’ve accrued 20% equity in your new home. Since it’s a relatively high expense, this is a serious benefit.

NADL Pros – No down payment
– Flexible credit approbal
– No private mortgage insurance requirement
– Lower closing costs Cons – Only available in select areas Eligibility – Must be a current or former military member of Native American descent, their spouse or other beneficiary
– Home must be located in an eligible area Best For – Native American veterans with limited savings

A Native American Direct Loan (NADL) is another mortgage program backed by the Department of Veteran Affairs.  It comes with impressive perks, like 0% down payment and a set interest rate. The interest rate is currently 4.5%, though that is subject to change based on market and Prime Rate fluctuations.

You won’t even need an impressive credit record to qualify. You also won’t need to get private mortgage insurance, a benefit that extends from normal VA loans. Plus, closing costs also tend to be lower with NADLs. Your home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts to qualify, though.

Delaware First-Time Home Buyer Programs DSHA Homeownership Loan

Delaware first-time home buyer programs

Pros – Lower interest rates
– Potential to combine with down payment assistance and tax credit to save even more Cons – Certain borrowers must complete housing counseling Eligibility – Credit score of at least 620
– Must earn less than $97,900
– Home must cost less than $417,000 Best For – Any borrower with limited income and a decent credit score

The Delaware State Housing Authority (DSHA) works with participating lenders to provide 30-year fixed rate mortgages. The largest benefit of these loans is below-market interest rates, which can be combined with the perks FHA, VA, USDA and conventional loans.

To qualify, you must earn within certain income requirements and your maximum loan value cannot exceed $417,000. Although anyone with a credit score as low as 620 can apply, borrowers with a credit score below 660 must participate in housing counseling with HUD-approved educators.

Neighborhood Stabilization Program Pros – Reduction in home cost
– Flexible credit approval
– Potential to combine with down payment assistance and tax credit to save even more Cons – Only available in select areas Eligibility – Must earn within 120% of the area median income (AMI)
– Must complete HUD-certified housing counseling Best For – Low- to mid-income borrowers willing to move to areas affected by foreclosures

HUD started the Neighborhood Stabilization Program (NSP) to assist communities that have been or are likely to be affected by foreclosures. For Delaware home buyers, that means affordable homeownership opportunities.

To qualify, borrowers must earn at or below 120% of the area median income (AMI) and agree to participate in home buyer education classes. These counseling sessions ensure that you understand the risks, responsibilities and rewards associated with mortgages and homeownership.

DSHA Preferred Plus Pros – No-interest loan up to 5% of your mortgage amount
– Potential to combine with DSHA loan and tax credit to save even more Cons – Certain borrowers must complete housing counseling Eligibility – Credit score of at least 620
– Must earn less than $97,900
– Home must cost less than $417,000 Best For – Home buyers taking advantage of DSHA programs who need more help to cover their down payment or closing costs

If saving enough for a down payment or closing costs is holding you back from homeownership in Delaware, the DSHA Preferred Plus program can help. It provides a second, no-interest loan between 2% to 5% of your overall loan amount to use toward the upfront costs of homeownership.

You must have a DSHA loan to qualify, so the eligibility requirements are largely the same. As with any DSHA loan, you must complete housing counseling if your credit score is lower than 660. Keep in mind that you must repay the loan when you sell your home, refinance your mortgage or get a new primary residence.  

In addition to upfront savings, the Preferred Plus program is intended to help borrowers have the necessary funds to fill and improve their new home and pad their savings accounts for the future. Even though you must pay the funds back, these are very flexible loans. Since they don’t carry any interest, you’ll never pay back more than you received.

Delaware First-Time Home Buyer Tax Credit Pros – Reduced federal tax bill
– Lasts the entire lifetime of the loan until repayment, refinancing or sale
– Potential to combine with DSHA loan and down payment assistance to save even more Cons – Must pay application fees Eligibility – Income and purchase price limits dependent on home location and household size Best For – Borrowers that can’t afford both tax bills and mortgage payments

In addition to the loan and down payment assistance programs, Delaware provides first-time home buyers with a Home Buyer Tax Credit to make homeownership even more affordable. Through this program, borrowers receive an annual federal tax reduction equivalent to 35% of mortgage interest paid up to $2,000 a year. You can claim the credit every year for the life of the loan. That means it could save you tens of thousands of dollars over time.

Eligibility requirements for this are consistent with other DSHA programs, but you don’t need a DSHA mortgage to qualify for the credit. The application fees, however, will depend on your participation in other Delaware home buyer programs. All applicants must pay a one-time $350 application fee, but the 1% “issuance fee” is waived for DSHA participants.

Tips to Incorporate Your New Mortgage Into Your Financial Life

Delaware first-time home buyer programs
  • It’s best to figure out how much house you can afford before you start looking for your first home so your mind and wallet are on the same page. Remember hat buying a home means paying moving and closing costs in addition to the down payment.
  • Buying a home will impact your budget. If you need help maintaining balance across the rest of your financial life, consider seeking help from an expert. The SmartAsset financial advisor matching tool is a great place to start your search.

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