Buying a House in Colorado? Down Payment Assistance in the Rocky Mountain State

Moving to Colorado can be a dream come true, especially if you can live in this beautiful state in your own affordable home. Colorado is known for its stunning scenery, outdoor activities, and friendly people. It boasts the Rocky Mountains, featuring gorgeous Pikes Peak, plus 57 other mountains exceeding 14,000 feet in elevation (Coloradans call them “fourteeners”). It’s also home to 42 diverse state parks, where you can fish, climb, sunbathe, mountain-bike, and snowboard.

Whether you want to connect with Mother Nature, take part in an adventure like heli-skiing, check out an art gallery, or visit a museum, Colorado has it all. The reasons to move to the state are endless — but you also want to be mindful of the costs, especially when it comes to homeownership.

The most immediate costs involved in buying a house involve your down payment, the monthly payments for principal and interest on your mortgage, property taxes, homeowners insurance … and more, including maintenance, HOA fees (if applicable), utilities, and repairs.

The biggest upfront cost of homeownership is almost always your down payment. A down payment is a lump sum of money that is used to help fund the purchase of a house. It is paid upfront, and is usually calculated as a percentage of the purchase price of the home.

Using a down payment calculator can help you decide how much to put down on your new home, and if it seems out of reach today, we have good news: there’s down payment assistance in Colorado available for qualified buyers. (That might include you!)

We spent hours researching down payment assistance in Colorado, interviewed real estate agents, and talked with loan officers to give you the information you need on down payment assistance in Colorado. After reading this guide, you will have a better understanding of how down payment assistance works in Colorado, where to find more information on the topic, what to be aware of, and what types of programs are right for your needs.

How much do you need to buy a house in Colorado?

Housing costs vary across the state. Major cities and their immediate suburbs tend to have more job opportunities and easier access to schools and activities, which mean higher housing prices compared with more rural areas.

Other things that affect housing prices are the supply and demand in the area, building restrictions, and open land. Here are some examples that show the big pricing difference in three Colorado cities.

As of the fourth quarter of 2021, the average home sales price in Colorado Springs was about $358,000, about $440,000 in Denver, and in Boulder it was about $415,000.

According to the U.S. Federal Housing Finance Agency, the median home value in Colorado is $723,940. This is much higher than the median home value across the U.S.: $273,763.

Colorado can be an expensive place to live, but don’t let that deter you.

“Most of my clients only put down 3% as a down payment,” said Aubrey Cook, a top-selling agent in Colorado Springs, who sells homes faster than 38% of other agents in the area.

The amount needed for a down payment depends on several factors, including the type of mortgage loan you’re getting, your overall credit profile, and even the type of house you’re buying. A primary residence, the home you live in, typically requires a smaller down payment than investment properties or second homes. Additionally, first-time buyers may qualify for programs that include a smaller down payment.

Mortgage loans typically require minimum down payments starting at 3%, 3.5%, 5%, 10%, or 20%, depending on the loan. And 20% is typically the amount required to avoid mortgage insurance.

Down payment amounts in Colorado cities

Based on the average home sales prices in the fourth quarter of 2021, here’s how much you’d need to save up to meet typical down payment requirements in these Colorado cities.

Types of down payment assistance available in Colorado

Although down payment amounts may seem formidable, there is assistance available. The details vary depending on the type of program, which include grants and loans.

• Grants: These don’t need to be repaid and act like a gift once requirements are met, which may include tasks such as attending a first-time homeowners seminar, or meeting certain income guidelines. Boulder’s Solution Grant down payment assistance program is a grant program.
• Second mortgage: Some programs involve deferred payments made when the house is sold or refinanced, and other second mortgages will need to be paid monthly along with your primary mortgage payment. These types of programs are offered statewide.
• Forgivable second mortgage: Often referred to as a “soft” mortgage, these are forgiven after a certain time period if the homeowner meets the criteria, such as living in the home for a specified number of years. If the criteria isn’t met, then the second mortgage must be repaid when you sell or refinance. Denver’s metroDPA is a forgivable second mortgage program.
• Matched savings grant: The buyer puts a certain amount down, and this amount is matched by the fund. Typically, these programs provide a dollar-for-dollar match. They’re usually offered by non-profit organizations or government entities, and the borrower must meet certain criteria to qualify. Criteria varies but usually includes attending financial education classes, meeting certain income requirements, and minimum credit scores.

Who handles down payment assistance in Colorado?

In most states, there is a state housing and finance authority that is in charge of handling down payment assistance. In Colorado, this is the Colorado Housing and Finance Authority.

The authority’s website offers a chat option for questions, as well as a list of programs and participating mortgage lenders, in addition to homeowner resources, and step-by-step guides. You can choose a lender in your area, whether that is Denver, Aspen, or Telluride.

There are also specific local programs that offer first-time buyer help, including down payment assistance, in different areas. For example, if you live in Denver, this is metroDPA; and there is a Homeownership Program in Boulder, Fort Collins HBA (Homebuyer Assistance), and Down Payment Assistance in Aurora.

Homebuyers who use one of CHFA’s participating mortgage loan programs to finance their home purchase may qualify for assistance options for a down payment and/or closing costs. CHFA offers both a grant and a second mortgage loan.

The grant assists eligible homeowners with up to 3% of the loan amount and does not need to be repaid. The second mortgage offers homebuyers up to 4% of the loan amount and can be deferred until you’ve paid off your loan or sell or refinance your home. Your mortgage lender will give you specific repayment details.

Now you know a little bit more about who handles down payment assistance in Colorado, so let’s delve into how to qualify for this assistance.

How do you qualify for down payment assistance?

Different down payment assistance programs have different qualification requirements. CHFA down payment assistance can be used by borrowers who are using a CHFA-approved lender and who meet other requirements, including having a minimum FICO score of 620 or higher. They must also not exceed set income limits, which vary from county to county and by household size.

In addition to income and credit score requirements, many programs also require that the borrower take some sort of homeownership class, which may be offered in person or online. They may also be required to put down a small amount for a down payment. This is usually $1,000, or $750 if you’re disabled. And most programs are reserved just for first-time homeowners, or buyers who haven’t owned a home in the past three years. All programs that offer down payment assistance generally require that it be used towards the purchase of your primary residence.

Qualifying for down payment assistance can be tricky. “The income limits with CHFA can be restrictive, and it can be difficult to qualify to buy a home in this market with this income,” says principal and Colorado licensed mortgage broker Jeffrey Lloyd.

“Keep in mind that even if you meet all of the requirements of an FHA loan, there may be lender overlays in place. These are individual criteria that lenders require above and beyond those of the loan program. For example, they may require borrowers to have a higher credit score,” says Eric Jeanette, who owns informational sites for Colorado homebuyers, and who has been in the mortgage loan industry since 2002.

Choose your down payment assistance adventure!

It’s time to embark on your down payment adventure. Take-off is in 3,2,1! Below are some resources to assist you. We included some of the qualifications and pros and cons of each program so that you can make an informed decision whether or not the program is right for you.

In addition to these programs, your bank or credit union may offer specific down payment and closing cost assistance, and local non-profits may do the same.

City programs

There are city-specific programs that offer first-time buyer help, including down payment assistance. Look for the program that is available in the city you live in.

• In Denver, the down payment program helps borrowers with incomes up to $150,00 and doesn’t have purchase price limits on the house. They offer up to 5% assistance as a three-year forgivable second mortgage. It must be for a primary residence, and you don’t have to be a first-time homebuyer.
• Boulder offers a similar down payment program to Denver (though you can get a forgivable loan for up to 6%), as well as additional options, including a down payment matching program. For every $1 you save for a down payment, the program gives you $4, up to $4,000. Additionally, there is a grant for low-income buyers, which can help bridge the gap between what a buyer has saved toward a down payment and closing costs and what is needed to close. A family of two can qualify if they make $73,755 or less.
• In Fort Collins, the city no longer provides direct loans, but it works with CHFA, metroDPA, and the Impact Development Fund. A four-person household can make up to $76,700 in an urban area and $95,875 in a non-urban area to qualify for down payment assistance up to $25,000.
• In Aurora, down payment assistance programs are available for those who have not owned a home in the past three years. Up to $10,000 can be put toward a down payment if all criteria are met, including making an income of less than $79,900 for a household of four. The purchase price limit as of February 2022 is currently $382,000.

CHFA down payment assistance grant

This is a grant, so it doesn’t need to be repaid. The CHFA website outlines eligibility requirements, which include falling under certain income guidelines listed by county.

Borrowers can qualify for up to 3% of their first mortgage for a down payment on a 30-year fixed-rate loan. Applicants must have a credit score of 620 or higher and must attend an approved homebuyer education class. They must also make a minimum $1,000 contribution to the house.

The pros are that this down payment assistance can help you realize the goal of homeownership at a reduced cost. However, the con is that you need a decent credit score and have to meet income limits, which may make it difficult to afford the monthly mortgage payment in some higher-cost areas.

CHFA second mortgage loan

This second mortgage has the same requirements as the down payment assistance grant offered by CHFA, but it isn’t forgivable; it needs to be paid back. However, it can cover up to 4% of your down payment. It can also be deferred until you pay off your first mortgage or refinance your home. The positives are that it can be deferred, and the website is full of educational material on homeownership in Colorado. The negatives are that it does need to be repaid, and you also need to meet credit and income criteria.

DPA and mortgage loans: Conventional, government-backed, and more

Down payment assistance can be used with various different loans if the loan program and the lender support it. A conventional loan typically requires a minimum down payment of at least 3%.

However, some conventional loans will allow down payment assistance in the form of a grant, a second mortgage, or even a bank-offered program which may be a forgivable, deferred payment, or a low-interest loan.

USDA loans also allow down payment assistance as long as certain criteria (like property classification) are met. FHA loans are designed for first-time homebuyers, and some can enforce certain income restrictions when down payment assistance is allowed. VA loans also offer down payment assistance, but only to qualifying service members, veterans, and specified spouses.

What about closing costs?

Closing costs are expenses related to a real estate transaction that do not include the purchase price of the property. Both buyers and sellers incur closing costs, and it’s important to keep them in mind when figuring out how much house you can afford.

Closing costs can include items like loan origination fees, property taxes, and escrow payments. Cook states that, “On average, my clients pay about $4,000 in closing costs when buying a house in the Colorado Springs area.”

Assistance may be available for your real estate closing costs. Talk to your real estate agent and mortgage lender about your options. Some first-time homebuyer programs will cover a percentage of your closing costs, while others will allow you to roll them into the loan instead of paying them upfront. In addition, some VA loans will also cover a portion of your closing costs. You may also be able to negotiate with the seller and have them pay some of your closing costs.

How to find down payment assistance to buy a home

Down payment assistance programs can be challenging to find, and it can be a frustrating and  time-consuming process if you don’t know where to look. Some programs are localized, others aren’t publicly advertised, and some programs are only funded sporadically.

Here are a few helpful places to look for down payment assistance in Colorado:

• Through your trusted real estate agent
• Your bank, credit union, or financial advisor
• A referral from a friend, family member, or co-worker who recently purchased a home
• Your employer or education provider
• Your state and municipality website
• A reputable financial institution’s state-by-state guide
• Veteran website if this applies to you
• Ask your lender if they’re qualified to work with any programs

Why working with a top agent is key

For most people, buying a house is the biggest investment you will make, so working with a qualified agent to help guide you through this major purchase is crucial. It not only makes the process easier, but also less stressful. There are many steps in the homebuying process, and a top agent will be able to walk you through them all including the home inspection and appraisal processes, as well as setting up a settlement date and letting you know ahead of time what to expect.

Additionally, a top agent may be able to save you money if they’re a strong negotiator and can help you purchase the property for less than the asking price. The agent should also be able to refer you to a great mortgage lender who can inform you of down payment assistance programs, including ones you may not know about. They may also be able to find ways to get closing cost assistance — all of which will only get you in the door of your dream home that much sooner!

Header Image Source: (Lucas Ludwig / Unsplash)