How to Buy a House in Colorado: A Homebuyer’s Guide

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Edited byAshley Jacobs
Contributions by3 experts

Updated: March 31, 2024

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Colorado ranks among the most expensive states to buy a home, with a median home value of $575,013. Compared to the national average of $357,589, house prices are significantly higher in Colorado compared to other states. The average home price in Colorado has increased by an average of 10.9% over the past year.

If you are looking for the best place to buy a house in Colorado, it helps to understand how the homebuying process works. This will help you identify the most ideal locations and mortgage options for your financial profile, making it easier to avoid costly mistakes while looking for a home to buy.

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Choose an Ideal Location

Before you buy a home in Colorado, you need to determine the right location. Location not only impacts the cost of the home, but it also determines other lifestyle factors. This includes the neighborhood culture, cost of living and access to amenities and recreational activities.

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WORK WITH A REAL ESTATE AGENT

If you are looking for the cheapest places to buy a home in Colorado or the best location, a real estate agent will help you narrow down your choices. Real estate agents will be familiar with the local area and can arrange tours of properties that fit your budget and needs. This can make the homebuying process faster and easier.

If you are not sure where to start, MoneyGeek recommends using the following tips when looking for an agent.

  • Get referrals from trusted friends, colleagues or family members
  • Check the references provided by the agent to verify their reputation
  • Ensure that the agent has in-depth knowledge of the area
  • Make sure that the agent is duly licensed
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CALCULATE THE COST OF LIVING

Living expenses can vary depending on where you live in Colorado. This means that aside from home prices, it is important to also consider the cost of living in a particular area. Some areas may have lower median house prices but a high cost of living, which can make them more expensive in the long run.

Some of the key expenses you need to consider include the following:

  • Food
  • Education
  • Utilities
  • Transportation
  • Property taxes
  • Health care
  • Entertainment

You can use MoneyGeek’s cost of living calculator to see how living expenses compare from one city to another.

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CONSIDER AFFORDABLE NEIGHBORHOODS

Colorado has a relatively high cost of living index, but those looking for the cheapest places to buy a house in Colorado can find affordable options by opting for cheaper neighborhoods within the state.

For instance, homes in suburbs tend to cost less than those in metropolitan areas. However, living in the suburbs may come with limitations in terms of access to social amenities like schools, hospitals and shopping centers.

Compared to some cities in Colorado, Hartsel and Como have lower-than-average home values of $409,834 and $424,935, respectively. This means that if you are looking for affordable places to buy a home in Colorado, those are good options.

Calculate Mortgage Rates

One of the most important steps when planning to buy a home is choosing the right mortgage. Homebuyers in Colorado can choose from various mortgage options. Each one has different mortgage rates, terms and eligibility requirements.

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SEE YOUR MORTGAGE OPTIONS

There are several mortgage options available depending on your profile and qualifications. Each type of mortgage has different mortgage rates, so it is important to choose carefully. Keep in mind that individual factors like your credit score will also impact your mortgage rates.

In Colorado, the average mortgage rates for different 30-year mortgages are:

Federal-backed home loans like VA and USDA home loans have specific eligibility requirements that buyers need to meet to be eligible.

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USE A MORTGAGE CALCULATOR

When planning to buy a home in Colorado, it is important to figure out how much you will pay each month. This will help you understand the cost of your loan and plan your finances.

MoneyGeek’s mortgage calculator can help you calculate your mortgage payments based on factors like the home’s price, down payment and more. To find the best rates for your profile, you can also compare rates between conventional and FHA home loans.

Once you have an estimate of your mortgage costs, you can compare different options to find the best home loan for you. Keep in mind that mortgage payments are a long-term commitment, so it is important to ensure you can afford them.

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KNOW YOUR QUALIFICATIONS

Before you apply for a home loan, it is important to understand how your financial profile will impact your mortgage options and rates. Some of the factors that lenders consider include:

  • Income: Lenders will use your income to assess how much you can afford to pay each month and your overall creditworthiness.
  • Credit score: Your credit score will be an important factor in your mortgage rates and terms since it is a key indicator of your creditworthiness.
  • Debt-to-income ratio (DTI): Your debt-to-income ratio can impact your ability to pay back your mortgage, so lenders will use this ratio to assess your creditworthiness.
  • Down payment: Borrowers with a higher down payment typically qualify for better mortgage rates since lenders consider them more creditworthy.

Prepare Down Payment Requirements

The down payment requirement for different types of mortgages varies. In Colorado, down payment options can range from 0% to 20% based on the type of home loan. The down payment on your mortgage will affect the total cost of the loan as well as your monthly mortgage payments.

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DETERMINE DOWN PAYMENT REQUIREMENTS

Different mortgage options have different down payment requirements. Borrowers who opt for conventional loans require a down payment of 20%, while federal-backed mortgages like VA loans do not require any down payment.

However, zero-down-payment mortgage options like USDA and VA loans have specific eligibility requirements that borrowers must meet.

Your lender will factor in the down payment when calculating mortgage rates and monthly payments. Homebuyers who put up a large down payment will typically get lower rates and lower monthly payments. In contrast, if your down payment is less than 20%, you may incur higher mortgage rates.

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CALCULATE MORTGAGE INSURANCE

Depending on the type of mortgage you qualify for, you might be required to pay private mortgage insurance. Lenders require insurance to protect themselves in case the homebuyer defaults on their mortgage payments.

The mortgage insurance requirements for different types of home loans are:

  • Conventional loans: Mortgage insurance is required if the borrower has a down payment that is less than 20% of the total purchase price.
  • FHA loans: Require mortgage insurance, and insurance rates depend on the term of the loan as well as other individual factors.
  • VA loans: Do not require mortgage insurance.
  • USDA loans: Do not require mortgage insurance but do mandate an annual guarantee fee.
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DOWN PAYMENT ASSISTANCE PROGRAMS

Residents buying their first homes or those who are unable to make a down payment can look up down payment assistance programs.

In Colorado, homebuyers can access the following down payment assistance programs:

  • CHAC Down-Payment Assistance Program: This program is available to low and middle-income first-time homebuyers in Colorado.
  • Metro Mortgage Assistance Plus Program: This program is available to homebuyers in Denver and offers grants to low and moderate-income families.
  • MetroDPA Down Payment Assistance: This program is available to homebuyers in the Denver area who fall in the low and moderate-income categories.
  • Turnkey Plus Mortgage Program: If you want to buy a home in El Paso County, this program can offer you a down payment grant of 4% of the mortgage amount.

Get Pre-Approved for a Mortgage

It is important to get a mortgage pre-approval when planning to buy a house in Colorado. The pre-approval is a commitment letter from the lender showing that they are willing to lend you a certain amount to purchase a home.

Keep in mind that a prequalification is not the same as a pre-approval since the prequalification only indicates that you qualify to borrow. It is not a commitment to lend you the money.

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GATHER NECESSARY DOCUMENTS

Like any other type of loan, mortgage loans require you to submit your personal details, including your identification documents and financial statements. To ensure that your mortgage application proceeds smoothly, gather the necessary documents.

These may include:

  • Copy of your driver's license
  • Copy of your Social Security card
  • Current pay stubs
  • Three years of tax returns with W-2s
  • Checking/savings account statements

Keep in mind that you may be required to produce other documents depending on your background. For instance, if you are self-employed, you might be required to provide your profit and loss statements.

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TIME YOUR PRE-APPROVAL

On average, it takes about 10 days for a lender to pre-approve you for a mortgage. The pre-approval will give you an indication of your mortgage rates, terms and limit so you can plan your finances accordingly.

Once you get a pre-approval letter, it is important to note how long it is valid for. This is because pre-approvals are only valid for a specific period ranging from 30 and 90 days.

To avoid having to apply for pre-approval multiple times, it is best to apply for pre-approval when you are ready to buy a house. This ensures that you will have closed your mortgage loan by the time the validity of the pre-approval letter lapses.

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RECEIVE PRE-APPROVAL LETTER

When you submit an application to a mortgage lender, they will review your information and perform a credit check to assess your eligibility. If you qualify for a loan, the lender will issue you a pre-approval letter. This letter will confirm details like the maximum amount you can buy, your mortgage rate and the term of the loan.

You can get pre-approval letters from different lenders. This will allow you to compare mortgage rates and pick the best option. However, pre-approvals require a hard credit check, so your credit score may take a hit.

Each lender will have a specific validity period for their pre-approval, so make a note of how long your letter is valid for. Once the pre-approval expires, you need to re-apply for a new one.

Conduct a Home Inspection

When buying a home, overlooking serious flaws and safety issues can leave you with significant repair costs and financial losses. This is why conducting a home inspection is a key part of the homebuying process.

Home inspections help to ascertain that the property you want to buy is in good condition and that it is safe for occupation.

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CONTACT A LICENSED INSPECTOR

Home inspectors are usually trained professionals who can provide an objective assessment of the condition of the house you want to buy. Hiring a professional inspector will ensure that you get a thorough home inspection to ensure the property is safe and in good condition.

Home inspections ensure that key areas of your home are in good condition, including:

  • The roof
  • Foundation
  • Plumbing system
  • Cooling and heating systems
  • Electric systems
  • The exterior of the house and surrounding grounds
  • Doors and windows
  • Attic and basement

Depending on the location of the property, other inspections might be required.

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FOLLOW COLORADO-SPECIFIC INSPECTIONS

Colorado is one of few states that does not require home inspectors to be licensed. However, it is still important for homebuyers to look for well-trained professionals to conduct a thorough home inspection before buying a home.

There are no special home inspection requirements in Colorado, but it is recommended that the home inspector check the key features and structures of the home, including the foundation, roof and electrical and HVAC systems. It may also be necessary to check furnaces, plumbing and major appliances.

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GO THROUGH APPRAISAL

Mortgage lenders will not finance your home before an appraisal is done. A home appraisal is conducted by a professional appraiser on behalf of the lender to verify the actual market value of the property. This step is necessary since the listing price of the house is not always equal to the actual market value. The appraiser will base the value of the home on features like the square footage of the home, but they will also consider the prevailing market rate for similar properties.

An appraisal helps to ensure that the borrower is not overborrowing by establishing the actual market value of the property. The buyer can access the appraisal report by requesting a copy from the mortgage lender.

Close Your Mortgage Loan

The final step of the homebuying process in Colorado is closing your mortgage loan. Make sure that you have reviewed and understood all the terms of your mortgage before signing any documents.

Also, consider that there will be closing costs involved. As a result, you’ll want to make sure you can cover them or seek assistance from Colorado’s down payment assistance programs.

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SIGN ALL DOCUMENTS

There is a lot of paperwork involved in the closing process, so be sure to review all documents carefully. You can always seek clarification from the lender if needed.

Some of the documents you can expect to sign include:

  • Final loan application: This confirms that the details you provided when applying for the loan are correct.
  • Mortgage note: This specifies the mortgage terms of the mortgage including the amount, interest rate, payment dates and terms.
  • Property deed: This deed details everything about the property and transfers ownership to the buyer.
  • Closing disclosure: The closing disclosure indicates the terms of your mortgage and is provided by the lender at least three business days before you close your mortgage loan.
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PAY CLOSING COSTS

When buying a home in Colorado, you will incur various closing costs, including:

  • Origination fees: Some lenders charge a percentage of the loan as an origination fee for their services.
  • Escrow: This refers to prepaid costs that are required upfront, such as mortgage insurance, property tax, homeowner’s insurance and annual funding fees if required.
  • Title search fees: You might be required to pay for the costs of the title search, which is conducted to verify that the property is rightfully in the buyer’s name.
  • Lender Fees: You will need to cover the lender fees, which include appraisal costs.
  • Third-party fees: The buyer is responsible for the home inspection fees, attorney fees, any homeowners association transfer fees that apply and any other applicable charges.
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COMPLETE YOUR HOME PURCHASE

Buying a home can be overwhelming, but following a clear process can help make the experience easier. Start by identifying the best location based on your needs and budget, then proceed to compare mortgage rates and find the best option. You can then prepare your down payment and submit an application to a lender for pre-approval. Once approved, you can conduct a home inspection before closing your home loan.

Your realtor will help you stay on track and provide guidance when you need it. It is important to verify your payment due dates once you receive your mortgage funds. Setting up automatic payments is wise since it will help you make your payments on time.

Colorado Homebuying Details

If you are looking to buy a home in Colorado, it is important to compare the mortgage options available to you depending on your qualifications. This is because home prices in Colorado can be high, so you want to ensure that you get the most affordable mortgage possible. You can also take advantage of down payment programs available in the state.

1

CHAC Down-Payment Assistance Program

This program is available to low and middle-income first-time homebuyers in Colorado who need help with down payment and closing costs.

2

City-based assistance programs

Depending on where you choose to buy a home in Colorado, there may be other mortgage assistance programs available to you, such as the MetroDPA Down Payment Assistance for homebuyers in Denver and the Turnkey Plus Mortgage Program for buyers in El Paso County.

Frequently Asked Questions About Buying a Home in Colorado

You can learn more about how to buy a house in Colorado using these answers to commonly asked questions below.

The most important questions to consider when buying a home in Colorado are:

  • Where is the best place to buy a home in Colorado?
  • What type of mortgage and rates do you qualify for?
  • How much down payment do you have?
  • Do you need down payment assistance?

It depends. Buying a house in Colorado is a good idea since median home values in the state are high and keep increasing steadily, so the value of your home will likely appreciate with time. However, you never know what the housing market will do.

It is wise to buy a house in Colorado in 2023 since median home prices have been increasing steadily. That said, the housing market can change at any moment.

On average, you need a down payment of 20% to buy a house in Colorado. However, with some mortgage options, you may not need a down payment, provided you meet the eligibility criteria.

The property tax rate in Colorado is 6.95%

Lamar is the cheapest city to buy a home in Colorado, with a median home value of $145,429 compared to a state average of $575,013.

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