2023 First-Time Homebuyer Programs in Colorado
Colorado’s first-time homebuyers have a wealth of programs available to them, which can provide assistance with covering down payments and closing costs to low- and moderate-income homebuyers. In this article, we’ll go over the different types of assistance available and how to access them so that you can start your journey toward owning your own home.
First-time homebuyer programs in Colorado
The Colorado Housing and Finance Authority (CHFA), an organization that is governed by members of the state legislature, oversees some of these programs, as do county- and citywide organizations.
CHFA Down Payment Assistance Grant
CHFA offers a down payment assistance grant worth up to 3% of your first mortgage. Grants don’t need to be repaid, as long as you meet the eligibility requirements, so it can be a great way to secure a few thousand dollars toward closing costs if you qualify. In order to be considered, applicants must be using a 30-year, fixed-rate CHFA loan as their first mortgage on the property.
To qualify for a CHFA loan, all applicants must meet the following requirements:
- Must have a credit score of 620 or higher
- Must not exceed CHFA’s income limits, based on county and loan program
- Must attend a CHFA-approved homebuyer education class prior to closing
- Must contribute at least $1,000 toward the purchase of the home
Pros and cons
No repayment required
Covers up to 3% of the first loan amount
Must use a CHFA loan program and a 30-year, fixed-rate loan
Loan may come at a higher interest rate
CHFA Second Mortgage Loan
In addition to its grant, the CHFA also offers its borrowers a second mortgage loan as down payment assistance. The second mortgage loan allows you to finance up to 4% of your first mortgage amount. However, while the second mortgage gives you access to more money upfront, it’s important to note that this is a loan and does need to be repaid. Repayment can be triggered by events such as paying off the mortgage, refinancing or no longer using the home as a primary residence.
- Borrowers must have a credit score of 620 or higher.
- The household income must not exceed CHFA’s income limits, based on county and loan programs.
- Borrowers attend a CHFA-approved homebuyer education class prior to closing.
- Borrowers contribute at least $1,000 toward the purchase of the home.
Pros and cons
Can access more funds
Able to finance up to 4% of the loan amount
Loan must be repaid
May come with a higher interest rate
NEWSED Community Development Corporation DPA Program – Denver
Residents of the Denver metro area may be eligible to receive up to $10,000 in down payment assistance in the form of a second mortgage loan. Eligibility is based on need, but qualifying borrowers can put the funds toward their down payment, closing costs, a principal reduction or an interest rate buy-down.
- The household income must be under 120% of the area median income (AMI).
- The property must undergo an inspection to ensure that it’s in decent, safe and sanitary condition.
- Borrowers are required to attend a first-time homebuyer class and a borrower consultation meeting.
- Borrowers must have a debt-to-income (DTI) ratio of 45% to 50%.
Pros and cons
Access to up to $10,000 in funds
Funds can be used for multiple purposes
Interest and payments are deferred
Loan needs to be repaid
Subject to income limits
Lots of additional eligibility requirements
Home Ownership Assistance Program (HOAP) – Aurora
Similar to Denver, Aurora’s Home Ownership Assistance Program (HOAP) offers qualified borrowers up to $10,000 in the form of a second loan. However, this time, the loan is a silent one, meaning that no repayment needs to be made until the house is sold or the mortgage is refinanced. Additionally, funds can only be put toward the down payment or closing costs.
- The household income must be less than 80% of the area median income (AMI) and the borrowers must have no more than $15,000 in cash reserves.
- Borrowers must attend a homebuyer education class and have a one-on-one phone or virtual appointment with a housing counselor before closing.
- A home inspection must be performed, as well as a lead-based paint inspection for any property built prior to 1978.
- Borrowers must contribute at least 1% of the purchase price towards the transaction.
Pros and cons
Access up to $10,000 in funds
Interest rates currently at 0%
Silent loan, meaning no monthly payments
Restricted to low-income borrowers
Lots of eligibility requirements
Colorado first-time homebuyer qualifications
While every one of Colorado’s first-time homebuyer programs is unique, most tend to follow a similar process for approval. With that in mind, here is an overview of what you can expect:
→ 1. Decide on the right program: Colorado has plenty of down payment assistance (DPA) programs available in addition to the ones listed above. You can research all of the options available to you on the Department of Housing and Urban Development (HUD)’s homeownership assistance page. Be sure to consider the type of down payment assistance available and whether you’re likely to meet the program requirements.
→ 2. Find an approved lender: Not every mortgage lender works with every down payment assistance program. When you decide on the DPA program that’s likely the best fit for you, it’s a good idea to call and ask for a list of participating lenders, who can help you determine if you qualify. You may want to interview a few before choosing the one that feels like the best fit.
→ 3. Get educated: Most of Colorado’s first-time homebuyer assistance programs require you to take a homebuyer education class. Some also require you to have a consultation meeting with program staff before closing on your loan. You’ll need to complete these requirements before moving forward.
→ 4. Go through the loan approval process: Once you apply for your loan, you and your lender will work together to complete the approval process together. There will likely be an inspection of the property, as well as an appraisal. At the same time, an underwriter will need to vet your financials to ensure that you are capable of comfortably taking on a new home loan.
→ 5. Close on your loan and receive funds: If all goes well during the loan approval process, you’ll close on the loan by signing paperwork. Once everything has been signed off on, your loan funds, including any down payment assistance, will be applied to the transaction so that you can walk away from the closing table with keys in hand.
Understanding Colorado first-time homebuyer down payment assistance
Down payment assistance is meant to help first-time homebuyers – and sometimes repeat buyers – cover the upfront costs of buying a home, including their down payment and closing costs. However, there are a few different types of assistance available.
Deferred second mortgage
Taking out a deferred second mortgage adds an additional lien to your property. However, unlike a first mortgage, deferred mortgages do not require regular, monthly repayments. Sometimes referred to as “soft second mortgages,” these loans typically only require repayment upon selling the property or refinancing the first mortgage.
Forgivable second mortgage
Again, taking out a forgivable second mortgage adds an additional lien to your property. However, as the name suggests, this time the loan has the potential to be forgiven after a set period of time, as long as you remain living in the home. Keep in mind, though, that you may be expected to repay the loan if you decide to move before that time period has passed.
Rather than acting as an additional loan, grant funds are a type of financial assistance that does not need to be repaid. That said, since they don’t require repayment, down payment assistance grants are typically very popular and may be harder to access than other programs, especially in areas where funds are limited.
Mortgage credit certificate
Finally, many homeowners can also benefit from a dollar-for-dollar tax credit for a percentage of the mortgage interest that they pay each year. The exact percentage of mortgage interest varies by state, but Colorado residents can get a credit for up to $2,000 worth of interest paid, depending on their loan amount.
How much of a down payment do I need to buy a house in Colorado?
The size of the down payment that you need to buy a home will vary according to the loan program you choose. Most programs require between 3% to 5% of the home’s purchase price, but if you can afford making a larger down payment up to 20%, you’ll lower your monthly payment and potentially do away with any mortgage insurance requirements.
Can I qualify for down payment assistance in Colorado?
The exact requirements to qualify for down payment assistance in Colorado will be determined by your chosen program. Still, here are some general guidelines on what to expect:
→ You’ll likely need to meet the program’s income and credit requirements.
→ You likely need to qualify for a mortgage with an approved program lender.
→ You’ll need to complete any specified education requirements.
→ You’ll likely need to plan to use the home as your primary residence.
→ You may need to purchase a home that meets specific program guidelines.
How do I apply for Colorado first-time homebuyer down payment assistance?
Whether you go with a statewide down payment assistance program sponsored by the Colorado Housing and Finance Authority (CHFA) or one of the more local programs from HUD’s list, the first step is to call the organization offering the aid. They will be able to answer any questions that you have about their program and connect you with a list of participating lenders who can help you get started with the application process.
Other first-time homebuyer loan programs
Conventional loans are loans that are not backed by any particular government agency. Fannie Mae and Freddie Mac, the two largest buyers of residential mortgages, each offer a conventional loan program that only requires a 3% down payment and can be utilized in conjunction with down payment assistance programs.
In contrast, FHA loans are insured by the Federal Housing Administration (FHA), which is part of HUD. This insurance protects the lender and allows them to offer lower down payments and more lenient qualifying standards, which makes them a good option for first-time homebuyers. The standard FHA loan requires a down payment of just 3.5% with a minimum credit score of 580. Credit scores as low as 500 may be accepted, but prepare to make a 10% down payment.
Veterans, active-duty service members, and qualifying military spouses may be eligible for a VA loan, which is a mortgage insured by the Department of Veterans Affairs (VA). These loans offer borrowers a 0% down payment and, in some cases, also do not impose minimum credit score requirements.
Finally, USDA loans are insured by the U.S. Department of Agriculture (USDA). These loans do not require a down payment. However, they do require borrowers to meet certain income limits and to purchase a home within certain specified rural areas.
What are the best first-time homebuyer loans?
Ultimately, choosing the right first-time homebuyer loan for you will be about finding the loan program that best matches your housing needs and financial situation. This process can take a little research. If you feel that you need assistance, you can always connect with a certified HUD housing counselor by calling 800-569-4287. They can provide you with free or low-cost advice.
Home price trends in Colorado’s major areas
Throughout the vast majority of Colorado, the median home price falls below $350,000, according to the National Association of Realtors (NAR). However, in areas like Pitkin County, home to the ski resort town Aspen, the median home value is much higher, reaching $875,482.
In much of the state, home values are also on the rise, which translates to higher mortgage payments. In Boulder County, the median mortgage payment is now $3,890 as of the third quarter of 2022 compared to just $2,442 a year earlier. Similarly, in Denver County, the average monthly mortgage payment is $3,183 compared to $2,021 at the same time last year.
Is there a first-time homebuyer tax credit in Colorado?
Some Colorado residents may be eligible for a first-time homebuyer tax credit, also known as a Mortgage Certificate Credit (MCC). The credit allows for a dollar-for-dollar reduction for interest paid on your mortgage and it’s worth up to $2,000 worth of interest paid, depending on their loan amount.
What are the current mortgage rate trends in Colorado?
Mortgage rates have been trending upward lately and the average rate for a 30-year, fixed-rate home loan currently sits at 6.42%, up around 2% from this time last year. However, those numbers reflect national trends. You can read up on Colorado’s mortgage rates using LendingTree’s mortgage rates page.