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Georgetown Real Estate Law Blog

Mortgage insurance and down payments

Potential homeowners in Delaware often believe that they must have 20 percent of the total sale price available for a down payment in order to purchase a property. Given the prices of real estate, this figure can seem to put homeownership well out of the reach of many individuals, couples and families. However, it does not actually take one-fifth of the total purchase price in cash in order to be able to buy a home. The difference between the cash down payment and this amount is guaranteed by mortgage insurance.

Mortgage insurance gives coverage to mortgage lenders and institutions like Fannie Mae for the risk of lending to borrowers without a 20 percent down payment. The insurance is paid for by the borrower and the premium is generally included as part of the monthly mortgage payment. Mortgage insurers conducted a study to highlight the importance of the insurance in making residential real estate purchases viable for many average families. The report from the industry may have been produced in response to announced plans by the Federal Housing Administration (FHA) to cut its own mortgage insurance premiums.

Buying a home while student debt is a factor

Student loan debt is a significant financial burden for many people in Delaware and across the country, and the weight of this debt can prevent people from taking steps like buying a home. Around the United States, there are over 44 million people who owe a total of $1.5 trillion in student debt. Of those, around 2.2 million people have a balance of $100,000 or higher, and $31 billion in student loan debt is currently 90 days or more overdue. Borrowers aged 40 and younger are particularly likely to carry student debt as they owe $850 billion of the outstanding student loan burden.

While student loan debt can be a major burden on anyone's balance sheet, it need not prevent people from taking the step of buying residential real estate. People can help bolster their chances of being approved for a mortgage despite their student loan debt by improving their FICO credit scores, for example. If people work to keep their credit scores at 750 or higher, they are considered to have excellent credit. This can play a major role in a successful mortgage approval.

Low supply and high demand driving up home prices

People shopping for homes in Delaware are likely to encounter rising home prices. A nationwide imbalance between the numbers of sellers and buyers has acted to increase listing prices and shorten the time that available homes spend on the market. A report produced by the data and analytics firm CoreLogic recorded a 1.1 percent increase in home prices between April and May 2018. Since May 2017, home prices have gone up 7.1 percent. CoreLogic predicts that by May 2019, home prices will have gone up by another 5.15 percent.

A survey conducted by CoreLogic and RTi Research found that 41 percent of renters aspire to buy a home in the next 12 months, but only 11 percent of current homeowners have any plans of listing their homes for sale. With such a constrained supply of single-family homes, buyers can expect little relief from rising home prices. An economist at CoreLogic said that the supply of entry-level homes is especially tight.

Ways homebuyers can protect themselves

When buying a home in Delaware, it is important to put in as many safeguards as possible. For instance, at an open house, buyers should ask for a seller's property disclosure. It will list everything that the seller knows is wrong with the home or was built without proper permission. As a general rule, a disclosure form that has nothing on it is a bigger warning sign than a form with several problems listed on it.

Buyers are generally allowed to break a purchase agreement if a homeowner doesn't disclose a problem that was known prior to the deal being struck. It may also be possible to put a series of contingencies into a purchase contract. If these contingencies cannot be met, the deal could be canceled by the buyer. Common contingencies include being able to get a mortgage or inspect the home.

What to consider when buying a home

Those who are currently renting in Delaware may long to be homeowners. Considering the current state of the housing market, however, it could make more sense for renters to put off making a home purchase. Those who are interested in buying a first home should make sure that they won't be house poor. This means that a homeowner is constantly at risk of losing the property.

Other factors to consider are the impact of other debts on one's finances before accounting for a mortgage payment. Ideally, an individual will spend no more than 30 percent of his or her monthly income on car, student loan and similar types of payments. Assuming that a potential buyer is in good shape financially, it is a good idea to consider the extra costs associated with acquiring a home.

An overview of closing costs for homebuyers and sellers

Homebuyers in Delaware often focus on the prices listed for properties, but price alone does not represent the total amount that a person will spend when purchasing a home. Numerous fees, insurance premiums and commissions create what are known as closing costs. Closing costs routinely total several thousand dollars. A typical property transaction will split these costs between the buyer and seller, although the parties can negotiate the details and shift some expenses one way or the other.

In general, a property transaction will obligate buyers to pay fees for mortgage loan processing, home inspection, home appraisal and title search. Additionally, home property insurance, points charged by a lender and credit screening will add to a buyer's costs. He or she also must pay local government recording fees and escrow fees that create a fund to cover property taxes and insurance for several months. If a buyer chooses to consult a lawyer, then the closing costs will include legal fees.

The pros and cons of having a tree

While many people in Delaware would like a home with a tree in the yard, this could be more trouble than it is worth. For instance, if the tree begins to rot, there could be a higher risk for extensive property damage or bodily injury. Furthermore, those that have holes, fractures or lean to one side might need to be removed.

Individuals who choose to keep a tree in their yard should understand that it will result in extra cleaning. Leaves and pine needles that fall on the grass, patio and driveway will need to be removed on a regular basis. Anyone who is looking to buy a property with a tree on it should be ready for birds to sit on the branches and the chance for their droppings to land on cars or other objects.

Purchasing short sales

Delaware residents who are interested in real estate investments might want to consider short sales. These transactions involve the owners selling their properties for less than the amounts that they owe and can offer the potential for good profits.

People who are interested in making short sale offers will need to convince the sellers and their lenders that the short sales are in their best interests. Getting a comparative market analysis completed by a real estate professional that shows that the property is worth less than what is owed can help. It is also helpful in situations in which the sellers are in danger of default or foreclosure.

The importance of listing a home at the right time

Those looking to buy or sell a home in Delaware should consider how the time of year influences the market. A market analysis by the real estate tracking website Zillow has identified May as the month when homes sell the fastest and demand the best prices on average.

After looking at data from 24 large markets nationwide, the first half of May emerged as an ideal time to list a property in 14 regions. Sellers who listed during this peak window for sales enjoyed an average premium of $2,400. Current market conditions tracked by Zillow indicated that inventory is tight as of Spring 2018. This situation will likely apply upward pressure on prices.

What to avoid when looking for a home

Most Delaware homebuyers get pretty excited when they find a property they believe fits all of their needs. Upon further research, however, a property could be more of a nightmare than a dream home. One sign that a home may not be worth buying is if the price was reduced significantly by the current owner. This could be a sign of a structural or other issue that needs to be looked into.

Someone who is going to buy a home should never close on a deal without doing a home inspection first. The inspection can reveal flaws that aren't easy to spot during a showing or an open house. If there are problems with the title, the buyer might not acquire full ownership of a home. Therefore, it can be a good idea to look closely at the title before closing on a property.