First Time Home Buyer – Complete Colorado Guide

by | Jun 21, 2021 | Buying, Denver

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First time home buyer programs are loan programs designed to help a wide range of people afford to purchase a home. Most people would rather own their home rather than rent but think that it is too far out of reach because of rising housing costs. 
What most people don’t realize is that they can actually afford to buy a home with the many first time home buyer programs that exist today. If you are a first time home buyer in Colorado, you have several options in regards to accessing a home mortgage: federal financing options and CHFA (Colorado Housing and Finance Authority). 

Federal First Time Home Buyer Financing Options

FHA Loans

The FHA program can be a great option for a first time home buyer in Colorado and across the country.This program requires that  buyers only have about 3.5% of the home’s value as a down payment. Because of that, it’s relatively easy to qualify for an FHA loan through an FHA approved lender. Typically 20% is needed for a conventional home loan which can be out of reach due to rising home prices and income limitations. 

Pros:

  • Low down payment (typical down payment for a conventional mortgage is 20% and this program allows for a down payment that is substantially lower)
  • Relatively flexible with credit score (this program allows for a credit score of below 580 in certain circumstances)
  • Easier to qualify for due to lower income needs and flexibility on credit score.

Eligibility:

  • Buyers need a credit score of 500 or above to qualify
  • If credit score is below 580, a larger down payment is needed to qualify
  • Borrowers need about 3.5% for a down payment

Ultimately, FHA loans are best for first time home buyers who may have a lower credit score and not a lot of down payment money. 

VA Loans

The Department of Veterans Affairs is in charge of VA loans and insures them from third-party mortgage lenders. The VA loan program was created in 1944 and was designed to help military members who had income limitations or low savings.  It’s important to note that this loan application can be lengthy. However, this is a great option first time home buyers who are active duty military members, or veterans.

Pros:

  • Can allow for 0% down payment
  • Low closing costs
  • No private mortgage insurance premium is required

Eligibility:

  • Must be a current or former military, or spouse the spouse of one
  • Credit score of 620 or above
  • Must pay the VA funding fee (typically 1.25% – 2.4%)

USDA Loans

A United States Department of Agriculture (USDA) loan is designed to attract existing and first time home buyers to rural, or semi-rural, areas around the United States. USDA mortgages eliminate the need for a down payment as long as you have a good credit score and payment history. 
Pros:

  • No down payment required
  • Can be approved with a low credit score

Eligibility:

  • Adjusted household income cannot be higher than the median household income in the area that you are purchasing (115%)
  • The home must be in a qualifying rural area
  • Only available to people that don’t qualify for a conventional mortgage

A USDA loan is a great option for low to middle income people that are looking to live in a rural or suburban area

Good Neighbor Next Door Program

The Good Neighbor Next Door Program was created within the U.S. Department of Housing and Urban Development specifically for emergency personnel and teachers. It’s not technically a loan because it allows people in these professions to receive a 50% discount on the purchase price of a home. They would need to qualify for a conventional, VA, or FHA mortgage etc. still to pay for the home. Additionally, the home must be in a revitalization area that is designated by HUD.
Pros:

  • 50% discount on the home’s value
  • Ability to sell the home and keep all of the equity after 3 years

Eligibility:

  • Must be a police officer, firefighter, emergency medical technician or pre-K to 12th grade teacher
  • Must live in the home for three years
  • Have to pay private mortgage insurance until 20% equity is achieved
  • Availability is limited in some areas because the program is designed to encourage certain professions to move into neighborhoods that need help being revitalized. 

This program is a great option for first time home buyers who are teachers, police officers or firefighters with low income or little savings for a down payment. 

Fannie Mae and Freddie Mac 

Fannie Mae and Freddie Mac were created by the federal government to provide first-time home buyers with a number of mortgage loan options. They are two separate entities, but offer similar benefits to home buyers. First time home buyers might want to look into the HomeReady loan from Fannie Mae as it requires down payments for as little as 3%. Additionally, buyers need a credit score of 620 and earn an income near the U.S. median.
Freddie Mac offers a Home Possible mortgage, which also only requires a 3% down payment but the main difference is that it comes in 15 to 30 year fixed rates and also adjustable rates.
Pros:

  • Low down payment (typical down payment for a conventional mortgage is 20% and this program allows for a down payment that is substantially lower)
  • Little credit needed 
  • Several loan styles available

Eligibility:

  • Depending on the area, income requirements may not be needed to be eligible.

People that are looking for a lower down payment option but haven’t been able to qualify for other loan programs should consider HomeReady. However, it’s important to note this program might have a higher interest rate compared to other loan programs. 

Colorado Housing Finance Authority (CHFA) first time home buyer loan programs

CHFA loans are distributed by a network of lenders approved by the government for new homeowners. To be considered a new home owner, a person can’t have owned a home or co-owned a home within the last three years. The main requirement to being approved for a CHFA loan is that a homebuyer education class is completed before closing on the home. Below are several types of CHFA loan programs.

CHFA Preferred

CHFA Preferred is a good option if you have a credit score of at least 620 and have a 3% down payment. However, if you don’t have a 3% down payment, the state provides assistance programs that help with down payment and closing costs. 
Pros:

  • As little as $1000 needed for a down payment (typical down payment for a conventional mortgage is 20% and this program allows for a down payment that is substantially lower)
  • Mid-tier credit score requirements in the lower 600s
  • Cheaper mortgage insurance and the option to pay it upfront

Eligibility:

  • Credit score of 620 or above 
  • Must complete a homebuyer education class
  • Income limits dependent on home location and household size

Anyone looking for a low down payment option in Colorado should consider CHFA Preferred. 

CHFA FirstStep Program

CHFA FirstStep provides access to 30-year, fixed-rate mortgages to homebuyers that don’t have a credit score. However, if you do have a credit score, it must be at least 620.
Pros:

  • Can qualify with no credit score
  • As little as $1000 needed for down payment (typical down payment for a conventional mortgage is 20% and this program allows for a down payment that is substantially lower)

Eligibility:

  • Anyone who hasn’t owned a home in the last three years
  • Must complete a homebuyer education class

People with a gap in home ownership and limited savings, or first time home buyers with a below average income are great candidates for this program. 

CHFA SmartStep Program

The CHFA SmartStep program features the lowest of mortgage rates. You can also combine with CHFA’s down payment and closing cost assistance programs which will save you even more money in the long run.
Pros:

  • Minimum $1,000 needed toward down payment (typical down payment for a conventional mortgage is 20% and this program allows for a down payment that is substantially lower)
  • Low mortgage rates
  • Mid-tier credit score requirements
  • Potential to combine with a Mortgage Credit Certificate tax credit to save even more

Eligibility:

  • Credit score of at least 620
  • Must complete a homebuyer education class

This program is First time home buyers with limited savings for a down payment of below average income. 

CHFA HomeAccess

The CHFA HomeAccess program provides first-time home buyers with disabilities who face financial struggles with the same assistance that other CHFA programs offer. A person with a permanent disability or is the parent of a child with a permanent disability, should look into this option.
Pros:

  • Mid-tier credit score requirements
  • Minimum $500 needed toward the purchase
  • Maximum $25,000 in down payment assistance

Eligibility:

  • Credit score of 620 or above
  • For adults with a permanent disability or parents of a child with permanent disabilities
  • Must complete a homebuyer education class

How to Qualify for First Time Home Buyer Programs

The above programs are just a few examples of loan programs designed for first-time homebuyers. Qualifying for a mortgage is a long process but the difficulty can be minimized by first getting prequalified to see what loan program is a good fit for you. You’ll need to gather the following before talking to a mortgage broker: 

  • Two years of W-2’s
  • Two years of Taxes
  • Bank statements
  • Last two paystubs
  • Credit card statements

Mike is the Market Director for Colorado at TRELORA. He is personally responsible for closing over 600 successful real estate transactions and has played a role in closing hundreds more. He started at TRELORA in August of 2016 and began his real estate career in Jacksonville, FL in February of 2011. In his tenure at TRELORA he has been a Buy Manager, Buy Agent, Listing Agent, and Field Agent before accepting his current position as Market Director in January of 2021. Mike has a Bachelor of Science in Finance and a Master of Science in Entrepreneurship both from the University of Florida. Go Gators!

Thinking About Buying Or Selling A Home?

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Thinking about buying or selling a home?

Get the best real estate advice from local experts in your inbox.