Between breathtaking natural beauty, a burgeoning craft beer scene and a plethora of job opportunities, there are plenty of reasons to move to Colorado. Unfortunately, home prices in the Centennial State have grown exponentially since Colorado rebounded from the 2008 recession. Prices don’t show signs of slowing down, but that doesn’t mean first-time home buyers should steer clear of securing a mortgage. The federal and Colorado state governments have created loan and mortgage programs to help make the process a bit easier – and more affordable.
A financial advisor can help you create a financial plan for your homebuying needs and goals.
Federal First-Time Home Buyer Programs
Before we dive into the programs designed specifically for Colorado residents, we’ll touch on a handful of national home buyer programs that anyone can access. Make sure to consider both federal and state options when conducting your mortgage search.
FHA Loans
| Pros | – Low down payment – Flexible credit score approval |
| Cons | – Larger down payment needed for those with a credit score beneath 580 |
| Eligibility | – Credit score of 500 or above – As little as a 3.5% down payment |
| Best For | – Those who don’t have a great credit history and money for a down payment |
The FHA program is a great option for anyone looking to buy a starter home, mostly because potential buyers only need to put down 3.5% of a home’s value at the time of purchase. Contrast that to the 20% most conventional loans require and you’ll understand the benefit. In fact, it’s one of the easiest mortgages to qualify for.
However, to receive the program’s biggest perk, you must have a FICO® credit score of 580 or higher. If yours falls between 500 and 580, you’ll need to make a 10% down payment. That’s still only half of a typical mortgage down payment. Though backed by the U.S. federal government, applicants secure FHA loans with outside lenders.
VA Loans
| Pros | – Can cover up to 100% of your home’s value – Low closing costs – No private mortgage insurance required |
| Cons | – Long application process – Must pay VA funding fee |
| Eligibility | – Current or former military member, spouse or other eligible beneficiary – Credit score of 580 or above |
| Best For | – Veterans without the necessary income or savings to afford a down payment |
The Department of Veterans Affairs insures VA loans from third-party mortgage lenders. The program began after many military members were unable to secure enough income or savings to apply for a mortgage once they completed their service. As such, VA loans do not require any down payment.
In most situations, veterans need a credit score of 580 or above to secure approval for a VA loan. You also need to pay a VA funding fee, which will be 1.25% to 3.6% of your home’s value depending on whether you choose to pay a down payment or not.
Aside from the funding fee, there are very few costs associated with a VA loan. Importantly, you won’t have to pay private mortgage insurance, which is normally required when making a down payment less than 20% of the home’s value. That’s because the government will assume the risk that you’ll be unable to pay your mortgage. Closing costs are also usually lower than they are with conventional and other mortgages, leaving even more money in your wallet.
USDA Loans
| Pros | – No down payment – Can be approved even with a low credit score |
| Cons | – Only available to those who don’t qualify for a conventional mortgage |
| Eligibility | – Adjusted household income can’t be more than 115% of the area median income in most cases – Home must be within an eligible rural area |
| Best For | – Low- to mid-income Americans looking to live in a rural or suburban area |
A United States Department of Agriculture (USDA) loan is legally known as a “Section 502 Single Family Housing Guaranteed Loan Program.” These mortgages are designed to attract homebuyers to rural, or semi-rural, places around the U.S.
USDA mortgages completely eliminate the need for a down payment, so long as you have a decent credit score and history. Down payments are around 10% for those with lower scores. However, because of this, you will not be eligible for a USDA loan if your household income level is higher than 115% of the area median income or if you have qualified for a conventional loan.
Good Neighbor Next Door Program
| Pros | – Flat 50% discount on the home’s value – Ability to sell home and keep all the equity after three years |
| Cons | – Not available to most people or in most areas – Must live in the home for at least three years following purchase |
| Eligibility | – For police officers, firefighters, emergency medical technicians and pre-K to 12th grade teachers |
| Best For | – Teachers or emergency personnel lacking adequate savings |
The Good Neighbor Next Door Program from the U.S. Department of Housing and Urban Development (HUD) is only available to emergency personnel and teachers. Although not technically a loan, it allows these individuals to receive a 50% discount on the purchase price of a new home. To pay for the home, you could get a conventional, VA or FHA mortgage or pay cash.
There are some preconditions you must meet to remain eligible for this program. In order to save half off your home, it must be located within a HUD-designated “Revitalization Area.” You also must agree to make the home your primary residence for at least the next three years. The good news is that if you meet this term, you can sell the home and hold onto any equity and profit once the three years are up.
Fannie Mae/Freddie Mac
| Pros | – Very low down payment – Little to no credit needed – Many loan styles available |
| Cons | – May have higher interest rates compared to other federal programs |
| Eligibility | – In some areas, there are no income requirements |
| Best For | – Anyone who is looking for a low down payment loan option, but doesn’t qualify for any other federal options |
Freddie Mac and Fannie Mae are mortgage lenders that the federal government created. Both have a number of first-time homebuyer options. Technically two different entities, they offer very similar benefits that anyone buying a first home can benefit from.
The HomeReady® loan from Fannie Mae requires down payments as low as 3%, making it a great choice for anyone who’s strapped for cash, has a credit score of at least 620 and makes an income at or near the U.S. median. With a HomeReady® loan, you must have private mortgage insurance at the time of purchase. Once you’ve accrued 20% equity in your new home, you can cancel it.
Freddie Mac, meanwhile, offers Home Possible® mortgages. These are 97% LTV, or loan-to-value, indicating that your down payment will only have to be 3% of the home’s value. The Home Possible loan comes in 15- to 30-year fixed-rate and 5/5, 5/1, 7/1 and 10/1 adjustable-rate terms. It also has that cancelable private mortgage insurance we talked about above. Perhaps best of all, you won’t need a strong (or any) credit history to qualify.
Native American Direct Loan Program (NADL)
| Pros | – Low credit score – No down payment – No private mortgage insurance requirements – Low closing costs |
| Cons | – Strict eligibility rules |
| Eligibility | – Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts |
| Best For | – Native American veterans that can’t afford a down payment |
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 currently sits at 6%, though that is subject to change based on market and Prime Rate fluctuations.
NADLs don’t require high credit score minimums or the purchase of private mortgage insurance, which is a perk that extends from normal VA loans. In an effort to cut down on the extra expense that closing costs can create, the VA has significantly lowered those as well.
Colorado First-Time Home Buyer Programs
Now let’s take a look at the first-time home buyer programs that are exclusive to those who are buying a home in the state of Colorado.
CHFA Advantage
| Pros | – Low down payment – No private mortgage insurance requirements – Potential to combine with a Mortgage Credit Certificate tax credit to save even more |
| Cons | – Income limits dependent on home location and household size |
| Eligibility | – Credit score of 680 or above – Must complete a home buyer education class |
| Best For | – Anyone with limited income and a decent credit score who can’t afford a typical down payment |
A network of government-approved lenders distributes all CHFA (Colorado Housing and Finance Authority) loans. To be considered a new homeowner, you can’t have owned or co-owned a home within the last three years. The only catch is a requirement to complete a home buyer education class before closing on your home. Since you can complete these classes online or in person for free, that isn’t much of an inconvenience. Plus, you’ll learn valuable lessons about the home buying process and insight into the true cost of homeownership.
As one of the Colorado first-time home buyer programs, a CHFA Advantage loan offers 30-year fixed-rate mortgages without a private mortgage insurance requirement. So long as you meet requisite income limits, you could qualify. It’s one of the most straightforward CHFA loans, but you do need a decent credit score (680 on the FICO® scale) to qualify.
The biggest advantage of CHFA Advantage loans rests with the down payments. They can be as low as 3%, which can be huge if you haven’t been able to save much. Eligible homeowners may be able to combine the Advantage program with a Mortgage Credit Certificate (MCC) to save even more.
CHFA Preferred
| Pros | – Income limits dependent on home location and household size – Higher interest rates may apply depending on the down payment amount |
| Cons | – Income limits dependent on home location and household size – Higher interest rates may apply depending on down payment amount |
| Eligibility | – Credit score of 620 or above – Must complete a homebuyer education class |
| Best For | – Anyone looking for a low down payment option, that doesn’t qualify for the Advantage loan |
The CHFA Preferred loan offers distinctive benefits to consumers like lower mortgage insurance rates than those on a conventional loan. There’s even an opportunity to pay the bulk of insurance costs at closing to reduce monthly payments. Once you reach an 80% loan-to-value ratio, you can also cancel monthly mortgage insurance payments.
So long as you meet CHFA income limits and have a credit score of at least 620, you only need to provide 3% of the home’s value as a down payment. It’s possible you don’t have that kind of cash on hand. If that’s the case, you could take advantage of the state down payment and closing cost assistance or second mortgage grants to make up the difference. At a bare minimum, you need to contribute $1,000.
CHFA FirstStep Program
| Pros | – As little as $1,000 needed toward down payment – Can qualify with no credit score |
| Cons | – Income limits dependent on home location and household size – Higher interest rates may apply depending on down payment amount |
| Eligibility | – Anyone who hasn’t owned or co-owned a home in the last three years, qualified veterans, or those buying in targeted areas – Must complete a homebuyer education class |
| Best For | – Those with limited savings and average or below-average income |
CHFA FirstStep provides access to 30-year, fixed-rate mortgages. What makes these loans especially beneficial is that homebuyers don’t need to have a credit score to qualify. If you do have a credit score, though, it must be at least 620. As with other CHFA programs, your income can’t be higher than the local median if you want to take advantage of the FirstStep program.
Homebuyers can also utilize CHFA down payment and closing cost assistance or second mortgage grants to make upfront costs even more affordable. Just beware that this can drive long-term mortgage rates higher. As with the CHFA Preferred loan, you only need to contribute $1,000 of your own funds to the transaction.
CHFA SmartStep Program
| Pros | – As little as $1,000 needed toward down payment – Low mortgage rates – Mid-tier credit score requirements – Potential to combine with a Mortgage Credit Certificate tax credit to save even more |
| Cons | – Income limits dependent on home location and household size – Higher interest rates may apply depending on down payment amount |
| Eligibility | – Credit score of 620 or above – Must complete a homebuyer education class |
| Best For | – Those with limited savings and average or below-average income looking to score a deal on monthly mortgage payments |
Of all CHFA programs, SmartStep features the lowest mortgage interest rates. You can also pair the program with CHFA’s down payment and closing cost assistance programs or Mortgage Credit Certificate (MCC) tax credit to keep even more money in your wallet.
SmartStep is open to anyone with a credit score of at least 620 on the FICO® scale who hasn’t owned or co-owned a home in the last three years. In addition, you must make at or below the area’s median income. As with the CHFA Preferred loan and FirstStep program, you only need to contribute $1,000 of your own funds to the transaction to qualify.
CHFA HomeOpener
| Pros | – As little as $1,000 needed toward down payment – Mid-tier credit score requirements – No purchase price limits – Higher incomes may qualify |
| Cons | – Those with a decent credit score who make too much money to qualify for other CHFA programs |
| Eligibility | – Credit score of 620 or above – Must complete a homebuyer education class |
| Best For | – Those with a decent credit score that make too much money to qualify for other CHFA programs |
Income limits on CHFA loans can be debilitating to some first-timers who need help affording their new home. That’s where HomeOpener mortgages come in. Buyers still have to complete the education course and put at least $1,000 down at closing, though. And you still have to meet the CHFA’s designated income limits. In an added perk for the more financially comfortable, there are no home purchase price limits.
HomeOpener loans also require borrowers to have a FICO® credit score of at least 620. As with the above programs, you can combine a HomeOpener loan with a CHFA down payment and closing cost assistance programs for even lower upfront costs. The increased savings may drive up your mortgage rate, though.
CHFA HomeAccess
| Pros | – Mid-tier credit score requirements – As little as $500 needed toward the purchase – Up to $25,000 in down payment assistance |
| Cons | – Strict eligibility requirements |
| Eligibility | – Credit score of 620 or above – For adults with a permanent disability or parents of a child with permanent disabilities – Must complete a home buyer education class |
| Best For | – Disabled individuals or parents of disabled individuals that couldn’t otherwise afford a home |
The HomeAccess loan program, another one of the Colorado first-time home buyer programs, is designed to lower the upfront cost of homeownership for buyers living with disabilities, who face a unique set of financial challenges. In addition to having a credit score of at least 620 and completing the home buyer education course, you must be an adult with a permanent disability (as defined by the Social Security Administration) or the parent of a child with permanent disabilities to qualify.
As with all CHFA loans, your income also must fall within 80-100% of the median for your area, including any benefits from federal Supplemental Security Income and Social Security Disability Insurance programs.
You’ll need as little as $750 to put toward the purchase of the home, which can be your own funds or gift funds. If you sign up for automatic payments through the CHFA’s Automated Clearing House payment program, you could reduce the amount to $500. If you qualify for HomeAccess, you could also be eligible for an additional $25,000 CFHA HomeAccess Second Mortgage. That will help with your home’s down payment and closing costs.
CHFA SectionEight Homeownership
| Pros | – As little as $1,000 needed toward down payment – Mid-tier credit score requirements – Potential to receive additional down payment assistance |
| Cons | – Must meet income limits from both the CHFA and HUD |
| Eligibility | – Credit score of 620 or above – Have used Section 8 rental vouchers for at least one year – Must complete a home buyer education class |
| Best For | – Anyone who qualifies for assistance from Public Housing Authorities (PHA) that can’t afford a traditional down payment |
If you need help renting, chances are you’ll need help buying. That shouldn’t hold Colorado home buyers back, though. The CHFA created the SectionEight Homeownership loan for just that purpose. So long as you’re a first-time home buyer with a credit score of at least 620 and have used Section 8 rental vouchers for at least one year, you could qualify. As with all CHFA programs, you also need to complete a home buyer education class online or in person before you can sign any purchase contract.
In addition to CHFA income limits, you’ll also need to meet HUD’s income requirements. Minimum down payments are the lesser of $3,000 or 3% of the home’s purchase price. At least $1,000 of the down payment must come from your own assets. Considering typical down payments are 20% of a home’s value, this makes your home much more affordable. Plus, if you qualify for the SectionEight loan, you could also receive a down payment and closing cost assistance via a CHFA grant.
CHFA Down Payment Assistance Grant
| Pros | – Receive up to 3% of your mortgage amount – No repayment required |
| Cons | – Do not count toward minimum down payment requirement |
| Eligibility | – CHFA loan participant |
| Best For | – Home buyers taking advantage of CHFA programs who need more help to cover their down payment or closing costs |
Home buyers using one of the above CHFA mortgage loan programs to finance their first home are also eligible for further assistance through the Down Payment Assistance (DPA) grant. These grants offer up to 3% of the mortgage loan amount to curb the down payment and closing costs. If you have a $200,000 mortgage, that means $6,000 toward initial homeownership costs.
DPA grants are intended to help home buyers not only save money upfront but also have funds to fill and improve their new home and pad their savings accounts for the future. Best of all, you never have to pay the money back.
CHFA Second Mortgage Loan Grant
| Pros | – Receive up to 4% of your mortgage amount- Zero interest – Deferred repayment |
| Cons | – Must be repaid |
| Eligibility | – CHFA loan participant |
| Best For | – Home buyers using CHFA programs that need significant help toward upfront homeownership costs |
In a similar option to the DPA grant, the CHFA offers first-time home buyers a second mortgage of up to 4% of their primary loan amount. To put that in perspective, it means you’d get a $12,000 loan if you have a $300,000 mortgage. This program has the obvious benefit of helping you achieve homeownership in the short term. In addition, the second loan doesn’t carry any interest.
Unlike the DPA, though, this grant does require repayment. Luckily, you can defer payments until you pay off your first mortgage or until you sell or refinance your home. For those struggling toward homeownership (even with other homebuyer programs), a zero-interest second mortgage can be a dream-come-true offering.
CHFA Mortgage Credit Certificates
| Pros | – Reduced federal tax bill |
| Cons | – Must meet income limits from both the CHFA and HUD |
| Eligibility | – CHFA loan participant |
| Best For | – Those participating in CHFA programs that can’t afford both tax bills and mortgage payments on their own |
Anyone with a CHFA mortgage loan should consider filing for the Mortgage Credit Certificate (MCC). An MCC allows homeowners to claim 20% of their annual mortgage interest as a tax credit on their federal return. You can claim your remaining interest as a home mortgage interest deduction. Pair these benefits with those of your CHFA loan and you could save some serious cash.
Just remember that you’ll need to meet CHFA and HUD income, credit score, and profile requirements to qualify for these lowered taxes and increased savings. You must be a trustworthy borrower making median or below-median income. In addition, you cannot have owned or co-owned a home in the last three years. You cannot be a veteran who was discharged for any dishonorable reason. Your house must also fall within certain purchase price limits.
Tips to Incorporate Your New Mortgage Into Your Financial Life
- Just because you qualify for one of the above first-time buyer programs doesn’t mean that it’s a good fit. When it comes to finding a Colorado mortgage, you should do as much research as you can. Look into all your options, including lenders, interest rates and down payment stipulations.
- You should only start your mortgage search after determining how much house you can afford. This allows you to have realistic limits in mind.
- Don’t forget that buying a home also means paying moving and closing costs. When it comes to homeownership, there is more than just monthly mortgage payments. Make sure you factor in homeowners insurance, property taxes and upkeep.
- Buying a home will undoubtedly impact your finances in a big way. Consider getting professional help to build and maintain a healthy financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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