The road to homeownership can be bumpy for first-time home buyers. Fortunately, there are ways to get financial support to make this process easier. We broke down some first-time homebuyer programs in Colorado to guide you in picking the one suited to your particular situation.
What Is a First-Time Homebuyer Program & How Can It Help?
Due to escalating living expenses, many first-time homebuyers struggle to save for a down payment. Fortunately, there are several loan programs available to assist you in financing a property. These include first-time homebuyer programs offered by individual states, government-backed loans and down payment assistance.
Keep in mind that to be eligible for federal homebuyer programs, you must be a U.S. citizen or permanent resident. To qualify for government-secured loans, you may also need to meet other requirements. For instance, USDA loans are intended for borrowers in qualifying rural areas who have low to moderate incomes. Likewise, only Colorado's residents are eligible for the homebuyer programs specific to the state.
In the end, knowing what financial help programs are available to you can mean the difference between buying a home right away or having to wait for many years.
Zero-Down-Payment Loan Programs
A zero-down mortgage is precisely what its name implies — a home loan that doesn't require a down payment. The USDA and VA loans are the only two significant financing programs that let you buy a home with no down payment; both are open to first-time and repeat homebuyers.
USDA loans from the U.S. Department of Agriculture are intended for borrowers with low to moderate incomes who reside in certain rural areas. These loans require no down payment or minimum credit history to qualify. They also offered comparably low rates.
The USDA offers the following three home loan programs:
- The Section 502 Loan Program provides direct loans for low- to very-low-income households.
- The Section 502 Guaranteed Rural Housing Loan Program assists private lenders in providing loans to low- and moderate-income households.
- The Section 504 Home Repair Program provides loans for home repairs, improvements or upgrades.
Your eligibility for a loan will depend on the income requirements specific to your county. For instance, in Boulder, single-family residences that make less than $62,700 annually are classified as very low income.
All guaranteed loans have a 30-year repayment period with monthly payments, including refinancing transactions. A fresh loan application and an underwriting analysis to verify the applicant's continued eligibility should be included in the documentation.
The U.S. Department of Veterans Affairs backs VA mortgages but issues them through private loan companies. They are generally limited to military personnel, veterans who were given an honorable discharge and eligible surviving spouses.
Due to its benefits over other home loan options, a VA loan is a desirable choice for qualifying borrowers. There are no requirements for a minimum credit score, loan limit or down payment and private mortgage insurance, or PMI is not required. Additionally, VA loans have modest closing costs and competitively low-interest rates.
VA also offers cash-out refinance loans, Interest Rate Reduction Refinance Loans (IRRRL), home purchase loans and Native American Direct Loans (NADL).
Your eligibility for a VA loan is based on your military history, including the duration, nature and status of your assignment. Additionally, you must have a suitable income, a credit score that is within the acceptable range and a valid Certificate of Eligibility (COE).
Low-Down-Payment Loan Programs
Low-down-payment loans can assist you in buying a house with less than a 20% deposit. Conventional loans and FHA loans are two types of mortgages with low down payment options.
Fannie and Freddie (Conventional) Loans
Conventional home loans are the most common type of financing for many first-time homebuyers. They are widely offered and have low rates because private mortgage lenders finance them. In comparison to government-backed loans, however, they typically have tighter lending restrictions.
Conventional loans can be divided into two categories: conforming and non-conforming loans. Conforming loans adhere to guidelines set by Freddie Mac or Fannie Mae, while non-conforming loans exceed the former’s limits.
With as little as 3% down, you may be eligible for a conventional loan, but you'll have to pay PMI to safeguard the lender in case you default on your loan. For a conforming conventional loan and a non-conforming conventional mortgage, you need to have a minimum credit score of 620 and 700, respectively. Your debt-to-income (DTI) ratio must also be 45% or less.
FHA loans are provided by private lenders but insured by the Federal Housing Administration (FHA). FHA loans feature fewer restrictions than conventional loans, such as a lower minimum credit score requirement of 500, a maximum debt-to-income ratio of 56.9% and a minimum down payment requirement of 3.5%.
Meeting the basic requirements of the FHA, however, does not ensure that your loan application will be approved. In reality, barely meeting these requirements may make it challenging to obtain an FHA loan. This is because your minimum down payment requirement is related to your credit score; credit scores below 579 only require a 3.5% down payment, while credit scores between 500 and 579 require a down payment of at least 10%.
Borrowers who are eligible for an FHA loan can pick between 15- and 30-year terms with fixed interest rates, with the maximum loan size determined by your state and county. You can use the online FHA Mortgage Limits tool provided by the Department of Housing and Urban Development (HUD) to determine the maximum loan amount available to you.
Take a look at the FHA 203(k) program if you want to buy a fixer-upper home. Through this program, homebuyers can utilize a single mortgage to pay for both the purchase and renovation of a home.
You are insured for a variety of rehabilitation costs with an FHA 203(k) loan, including structural modifications and reconstruction, removing health and safety risks, modernization, reconditioning or replacing plumbing and accessibility upgrades. Remember that the HUD requires all participating properties to adhere to certain fundamental structural and energy efficiency standards.
The lending criteria for FHA 203(k) loans are comparable to those for FHA loans. For borrowers with credit scores of at least 580, the required minimum down payment is 3.5%; for those with scores between 500 and 579, it is 10%.
USDA loans: Ensure that the property you’re interested in purchasing is located in a rural community with fewer than 35,000 residents.
VA loans: The most crucial document needed for VA loans is the Certificate of Eligibility (COE).
Conventional loans: With as little as a 3% down payment, you may be eligible for a conventional home loan.
FHA loans: FHA loans feature some of the most lenient credit score, debt-to-income ratio and down payment restrictions of any type of loan.
FHA 203(k) loans: You can upgrade and repair a fixer-upper home under one mortgage with an FHA 203(k) loan.
Colorado Homebuyer Programs
In addition to government loans which are available for most U.S. citizens, Colorado first-time homebuyer programs, which are only for state residents, are another resource you can use to buy your dream house.
CHFA Mortgage Programs
CHFA mortgage programs offer grants for down payment assistance that can cover up to 3% of your initial mortgage. It provides financial resources to support affordable homeownership and rental housing through participating Colorado lenders.
Aurora’s Home Ownership Assistance Program
Aurora's Home Ownership Assistance Program (HOAP) is committed to helping low- to moderate-income families find affordable housing. For qualified first-time homeowners, the loan program provides up to $10,000 with zero interest to help cover the costs of a down payment and closing fees.
HUD Resources CO
Colorado homebuyers have access to a number of state and local homeownership aid programs through HUD. These include the Adams County Housing Authority, HomesFund Homeownership Program, Home Ownership Programs and Colorado Housing Enterprise.
FAQs for First-Time Homebuyers in Colorado
As a first-time home buyer in Colorado, MoneyGeek has provided answers to some frequently asked questions to guide you on your way to homeownership.
- City of Aurora. "Down Payment Assistance - City of Aurora." Accessed September 23, 2022.
- Colorado Housing and Finance Authority. "About CHFA." Accessed September 23, 2022.
- U.S. Department of Agriculture. "Single Family Housing Direct Home Loans." Accessed September 23, 2022.
- U.S. Department of Agriculture. "Single Family Housing Guaranteed Loan Program." Accessed September 23, 2022.
- U.S. Department of Agriculture. "Single Family Housing Repair Loans and Grants." Accessed September 23, 2022.
- U.S. Department of Agriculture. "Loan Term Notes." Accessed September 23, 2022.
- U.S. Department of Housing and Urban Development. "203(k) Rehab Mortgage Insurance." Accessed September 23, 2022.
- U.S. Department of Housing and Urban Development. "FHA Mortgage Limits." Accessed September 23, 2022.
- U.S. Department of Housing and Urban Development. "Homeownership Assistance: Colorado." Accessed September 23, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 23, 2022.