Home Buying in Delaware

The median household income in Delaware is just over $80,000, and the median home price is $356,000. Prices vary by location:

• Sussex County, the median sold price is $444,000.
• Kent County, the median sold price is $298,000.
• Rehoboth Beach's median sold price is $761,000.
• New Castle County, the median sold price is $390,000.

More than 70 percent of Delaware homes are owner-occupied, which can make for a tough real estate market. People who have been in their homes for several years don't want to sell at this time because interest rates are high, and if they sell, they would need to get a new mortgage at a higher rate.

Hence, Delaware's real estate market is considered a seller's market. That means homes generally sell for the asking price or above because there are more buyers than homes available. Currently, listing prices are up 8 percent, and sale prices are higher than the listing prices, indicating a very competitive market in which buyers are stretching their budgets to bid more for homes.

It takes 21-30 days for a home to sell in Delaware. Since inventory is low, prequalified buyers are in the best position to move quickly when the right place is found. Having a 20-percent down payment ready is key. To get a mortgage, you need a solid work history and a credit score above 600. (It can be a bit lower if you can make a 20 percent downpayment.)

If there are any known defects in a home, Delaware sellers are required to inform buyers. The disclosure law covers more than the property condition. It includes information like:

• If the home is part of a Homeowner's Association (HOA) or within a historic district
• If the home is a leasehold or ground lease property
• If it has been tested for lead, mold, or other toxins
• The type of water system (well or town/city water)
• Whether it's in a flood plain.

The disclosure is presented to a prospective buyer who bids on the home. A property inspection is still important to determine the extent of any issues and potential costs. Sometimes, this information prompts renegotiation of the price. Your down payment should be contingent upon the property passing inspection without significant issues.

Parts of the Delmarva Peninsula can feel very isolated and remote despite their short distances to major cities. There's a lot to consider when buying a home, including access to essential goods and services and the community vibe.

A seller's market can bring disappointment if your budget won't stretch to bid more than the asking price of a home you really want. But if you're prequalified for a mortgage, have a significant down payment ready, and are prepared to waive contingencies for the right property, you're likely to prevail.

A professional buyer's agent can counsel and guide you through the process. This realtor helps you find properties that most closely match your desired location and amenities. They help you develop a strategy for finding and purchasing a home, including writing your offer and negotiating the price.

The best buyer's agents have information ready on the price history of a home, pros and cons of the local area, and property taxes. In addition to helping with the initial offer, they will help hire an inspector, renegotiate the price if there are structural or systemic issues, and keep the closing process on track.

Instead of splitting a 5-6 percent commission with the seller's agent, buyer's agents now negotiate their commission. Buyers must sign a contract describing the agent's role and payment.

The best way to understand what homes you can afford is to get prequalified for a mortgage. The median household income in Delaware is $82,000. With that income and a $60,000 down payment, a buyer may qualify for a $340,000 mortgage (about a $400,000 home) in today's high-interest economy. You're limited to paying $2,000 or less per month for your mortgage. That's because mortgage lenders won't allow people to spend more than 30 percent of their income on mortgage payments.

When shopping for a mortgage, talk to both mortgage brokers and your local bank. A banker who knows you may extend special benefits to a regular customer. Mortgage brokers have access to a wide variety of mortgage choices and can find a good deal for you. Your decision may hinge on your comfort level with the mortgage industry.

When you apply for prequalification, your income-to-debt ratio and your history of on-time payments are crucial. Your credit should be above 600 for government-backed loans and above 640 for other mortgages. Get free copies of your credit report from the major agencies (Experian, Equifax, and TransUnion) to correct any errors that could complicate and delay your prequalification.

The federal interest rate sets the tone for mortgages, and it's now above 7 percent, the highest in years. This translates to higher payments for buyers. That's why many longtime homeowners don't want to sell now: they would end up getting a new mortgage at a higher rate and with higher payments.

Some buyers are able to assume the seller's mortgage, which may be beneficial if the mortgage has a low interest rate. Most USDA, FHA, and VA loans are assumable if you qualify for them. The catch is you have to pay off the equity the owner has built, which is the difference between the property's selling price and the amount left on the mortgage you're assuming. To do so, you're likely to have to take out a second mortgage.

If interest rates are low, fixed-rate mortgages can be a good deal, but they're less desirable if rates are high (rates rise and fall incrementally over periods of years). Adjustable-rate mortgages are riskier because the interest rate can change during the loan's term. Jumbo mortgages allow wealthy buyers to borrow more than the federal housing authority limit, about $766,000, in areas of particularly high property values.

Mortgage options include these government programs:

• Called KissYourLandlordGoodbye.com, the Delaware State Housing Authority offers special mortgage and down payment programs for first-time homebuyers.
• FHA mortgages are tailored for first-time buyers with down payments of less than 5 percent.
• Rural properties may qualify for USDA loans, especially buyers with low incomes, but good credit scores.
• Military veterans and their surviving spouses may seek a Veterans Administration-underwritten VA loan. These mortgages do not require PMI and may be used multiple times by qualifying individuals.

Most homeowners in Delaware pay around $900 for property insurance, significantly less than the $2,700 national average. The state does not require property insurance, but mortgage companies often require PMI, a type of insurance that the homeowner pays, to protect their interest in the property. Putting less than 20 percent down on a home triggers a requirement for PMI by lenders. The cost of PMI varies according to your credit score but is generally between $400 and $1,400 per month in addition to your mortgage payment.

Outbuildings must be specifically noted in the policy for coverage. Valuable personal possessions inside the home are unlikely to be covered by insurance unless an additional rider is written.

Flooding costs Delawareans $120 million annually, both from excessive rain and from sea level rise. That can impact an owner's ability to get homeowner's insurance and can trigger additional – costly, changes to your property. Some coastal communities and counties require property owners to "lift" their homes above the 100-year flood level by adding "stilts" or removing living space at the lowest level of the structure and making it impervious to flood damage. Oftentimes the requirement is triggered by a property sale or renovation.