Colorado’s housing market is scorching. Over the past quarter-century, Denver has been the nation’s hottest big-city housing market. Since 1991, Denver home values soared 270 percent, outpacing even San Francisco’s 219 percent rise, according to SmartAsset. That means potential homebuyers in Colorado must navigate tight inventories, bidding wars and wrenching commutes. However, low mortgage rates and rising rents can make homeownership a good deal. Before you dive in, you need to understand and prepare for the homebuying and mortgage process. This article offers a step-by-step guide with advice from experts in Colorado.

1

Check Mortgage Rates in Colorado

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Mortgage rates are low across the United States, but in Colorado, the average rate can be a bit higher than in other states. State economies and lender competition factor into average rates you see posted. Since buyers can’t control state-by-state fluctuations, they should focus on their credit ratings, loan amounts and down payment. Move these factors in your favor, and you might negotiate a better deal with your lender.

2

First-Timer? Find Homebuying Help in Colorado

The Colorado Housing and Finance Authority (CHFA) has several loan programs to help a wide range of buyers finance homes. The higher your credit score, the more generous these state programs are. For instance, the CHFA advantage requires just 3 percent down and no mortgage insurance for borrowers with credit scores of 680 or higher. CHFA also offers a grant that can be used for a down payment or for closing costs. The grant gives qualified homebuyers as much as 3 percent of their mortgage loan and doesn’t have to be repaid.

“Inventory is tight, and we’ve seen significant increases in people seeking assistance,” says Jerilynn Martinez, marketing and community relations director for CHFA. “We recognized that our buyers were having a more difficult time because there was an increase in bidding situations.” CHFA offers a homebuyer education program to help homebuyers learn more about mortgages and homeownership. CHFA requires its borrowers attend the program. “The goal is to help buyers feel empowered and understand the jargon on the forms they encounter,” Martinez says.

In addition to state programs, cities such as Denver and Boulder offer their own initiatives to help buyers achieve homeownership.

Financial Assistance in Colorado for First-Time Buyers

First-time homebuyers with varying income levels can qualify for help for down payments and closing costs.

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3

Understanding Home Affordability in Colorado

Competition for homes is fierce in Colorado. The state gets an estimated 3,000 new residents every month. Combine that with the fact some regions limit new construction, and conditions are ripe for soaring home prices that have put a crimp in affordability.

Although wages are relatively high in Colorado, fast-rising home prices have put a squeeze on affordability in large parts of the state. In Boulder, the median home price of $420,000 in the first quarter of 2016 meant that just 54 percent of homes sold in the period were affordable for a typical family, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. In Denver, with a median price of $330,000, homes were in reach of 58 percent of families with a median income.

However, Colorado Springs, with a median price of $232,000, is a bastion of affordability. Fully 79 percent of homes there were affordable for a typical family.


How Colorado Mortgage Rates and Home Prices Affect Monthly Payments

Metro Area Estimated Monthly Mortgage Payment* Q1 2016 (Change from Previous Year) 2015 Median Home Price 2014 2013
Boulder $2,254 $479,700 (+8.50%) $454,100 $390,700 $371,800
Colorado Springs $1,127 $239,800 (+9.00%) $238,600 $222,300 $216,800
Denver-Aurora $1,734 $369,000 (+9.10%) $353,600 $310,200 $280,600

Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today’s rates.

4

Colorado’s Conforming and FHA Loan Limits

Colorado’s federal loan limits vary widely by county. The Federal Housing Finance Agency’s conforming loan limits range from $417,000 in some parts of Colorado to $625,500 in pricey resort areas such as Aspen.

In Denver County, the limit for Fannie Mae and Freddie Mac loans is $458,850. Borrow more than that and you’ll need a jumbo loan, which carry higher interest rates than a conforming loan.

The range for FHA loans is even wider, ranging from $271,050 to $625,500. For example, the limit in Teller County, near Colorado Springs, is $271,050, while the max in Douglas and Jefferson counties is $458,850. You can investigate loan limits more closely in the table below.

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Buying a Home in Colorado’s Hot Market: Experts Weigh In

Mark Trenka

Mark Trenka owns Century 21 Trenka Real Estate in Denver, chairs the Colorado Association of Realtors and was past president of the Denver Board of Realtors.

Bob Sutton

Bob Sutton, agent at RE/MAX Alliance in Fort Collins, is the 2017 chairman of the Fort Collins Board of Realtors.

Kathy LeMay

Kathy LeMay is a broker associate at RE/MAX Alliance in Westminster.

What advice do you give first-time buyers?

Trenka

They should select a realtor to help guide their process and search. Realtors have direct access to the local MLS and a wealth of other tools to help in searches and processing the transaction. The realtor can also provide information on lenders in the local market who communicate well with new buyers, understand the unique processes in Colorado, and are dependable in getting the transactions completed. 

Sutton

Buckle up and get ready for a wild ride. Anything under $300,000 with three bedrooms, two bathrooms and a two-car garage is on the market for literally hours.

LeMay

Educate yourself on the loan process, the homebuying process, special programs for the area. Talk to a mortgage expert and get a pre-approval before looking at properties.

What’s the biggest challenge for buyers right now?

Trenka

Competition for desired properties.

Sutton

The lack of inventory, and the lack of infrastructure to address the lack of inventory. It’s almost impossible for builders to build condominiums, and condos are one of the building blocks of the housing market.

LeMay

Lack of inventory! Properties are selling quickly in our market, with multiple offers on most properties. For the first-time home buyer, entry-level homes are rare. The construction defect law has halted the construction of new condo buildings, which would often be a good starting point for first-time home buyers.

How has your market changed through the volatility of the past decade?

Trenka

Activity is lively in most markets, and the state is experiencing stable prices and increases in many areas.

Sutton

The bubble hit us, but it didn’t hit us quite as hard, and we bounced back pretty fast. We have strong population growth and a lot of stabilizing factors like universities, tech companies and blue-collar jobs. We’ve got a pretty diverse economy.

LeMay

The market is a dynamic beast. With the bust in 2006, inventory was not a problem. Today, properties are selling in a matter of days, short sales and foreclosures are rare, new construction is selling before the actual construction begins. And, of course, prices are increasing as demand increases. Cash sales are common.

What’s unique about Colorado’s market?

Trenka

Colorado is a great place to live. It offers a great climate and tons of outdoor activity.  You could spend a whole summer exploring all four corners of the state and not see the same thing twice. 

Sutton

We have our struggles with lack of inventory and prices, but the flip side is it’s still a very desirable place to live. We’ve got great big mountains, and everybody loves to go play in them.

LeMay

Colorado is an amazing place to live with endless outdoor activities year-round, 300 days of sunshine, gorgeous views and a strong job market. As a result, in the Denver metro market, buyers that are well qualified have a difficult time getting an offer accepted. Buyers who are using down payment assistance can’t compete. Properties sell quickly with competing offers, usually over asking price. Buyers are waiving contingencies like home inspections and appraisals just to be competitive. Escalation clauses are common.

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Don’t Forget Colorado Closing Costs

The sticker shock you experience when you buy in Colorado will continue when you take out a loan. Closing costs for a $200,000 loan average $1,910, which is on the high side compared to other states, according to this Bankrate.com survey.

A CHFA grant and some loans can help homebuyers cover these costs. Some costs also can be negotiated. For more about the expenses that accompany taking out a mortgage, visit MoneyGeek’s closing costs page.

Average Closing Costs in the Centennial State

Average Origination
Fees
$1,192
Average Third-Party
Fees
$719
Average Total Closing
Costs
$1,911

Source: Bankrate’s 2015 survey of closing costs.

Equity-Rich: Refinancing a Mortgage in Colorado

Colorado home values have risen sharply in recent years, leaving many homeowners with plenty of equity and, therefore, the flexibility to refinance. And with mortgage rates near record lows, refinancing might be worthwhile. To calculate the possible savings, consider this case study: Say you have a 30-year mortgage for $300,000 at 5 percent interest. That means your monthly payment for principal and interest is $1,610. Refinancing into a $300,000 mortgage at an interest rate of 3.5 percent would cut your monthly payment to $1,347.

Many Colorado homeowners already have taken advantage of low rates by refinancing, a trend shown in slowing levels of refinancings. However, some homeowners are choosing to refinance to take equity from their homes, Scott Seeley, senior loan officer with VIP Mortgage near Denver, says. And borrowers who initially made low down payments can take advantage of rising home values by refinancing into mortgages with lower loan-to-value ratios. That can translate into a lower rate and eliminate mortgage insurance.

For more details about when refinancing makes sense, see MoneyGeek’s refi guide.

Other Colorado Mortgage Resources

The Colorado Housing and Finance Authority provides homebuyers with the educational tools they need to get started in the home buying process.

How to get a CHFA loan

The Colorado Housing and Finance Authority walks you through the steps to qualify for a mortgage.

Find a CHFA lender

Check the Colorado Housing and Finance Authority’s list of lenders who participate in its programs.

CFHA down payment assistance

This page walks you through options for landing a grant to help you get into a home.

Denver affordable housing program

The city offers assistance to low-income buyers and others seeking a foot in the door of a hot housing market.

Boulder homeownership program

Boulder’s median home price is more than $640,000, which means it’s not easy to find an affordable place. The city posted this step-by-step guide to qualifying for its homeownership program.

Fort Collins down payment assistance

The city offers up to $15,000 to moderate-income buyers who need help with closing costs or down payments. Home value must be less than $279,750.

University of Colorado housing assistance

A major employer in the state, the university system extends loans of up to $80,000 to full-time faculty. The borrower must personally fund at least 2% of the purchase price.

El Paso County down payment assistance

The county, which includes Colorado Springs, offers favorable loan terms and generous limits on income ($103,460 for a family of at least three) and purchase price (up to $312,368).

Colorado housing statistics

The Colorado Association of Realtors publishes monthly reports on home prices, sales, inventory and other trends.