Colorado first-time homebuyer programs

Down payment assistance programs

Down payment assistance programs in Colorado can help first-time buyers compete in a hot housing market, especially in major cities like Denver and Boulder. With a high cost of living and homes selling fast, many buyers feel priced out. First-time homebuyer programs are designed to ease the burden and make homeownership more accessible.

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Here are a few options to consider.

CHFA Down Payment Assistance Grant

For those obtaining a mortgage through the Colorado Housing and Finance Authority (CHFA), the associated CHFA Down Payment Assistance Grant can significantly reduce upfront costs. The program offers up to $25,000 or 3% of the loan amount, whichever is less, and doesn’t require the money to be paid back.

Those looking to take advantage of this CHFA grant will need to work with an approved lender who will apply the grant money to the mortgage during the home purchase process.

This grant can’t be used for the following:

• Any debt other than that associated with the home purchase
• Any discrepancy between the purchase price and the appraised value of the home
• Funding an escrow account
• Reducing the loan amount in order to qualify for the loan ceiling

 These are the requirements for CHFA’s Down Payment Assistance Grant:

• Credit score of at least 620
• Income below CHFA limits for your location and household size
• Completion of a homebuyer education class
• Minimum $1,000 contribution toward the home purchase

CHFA Second Mortgage Loan

The CHFA Second Mortgage Loan is also a popular assistance program in Colorado, said Andrew Fortune, the founder of Great Colorado Homes, a brokerage in Colorado Springs. This program and others like it essentially operate as a second mortgage for the down payment on a home.

The 20% down payment requirement keeps many people from homeownership, Fortune told us. “This loan can be used for the down payment, and can be paid off once the primary mortgage on the home is fully paid, or you sell or refinance the home, whichever comes first.”

The requirements for CHFA’s Second Mortgage Loan are the same as the Down Payment Assistance grant:

• Credit score of at least 620
• Income below CHFA limits for your location and household size
• Completion of a homebuyer education class
• Minimum $1,000 contribution toward the home purchase

El Paso County’s Turnkey Plus program

The Turnkey Plus program offers down payment assistance to buyers purchasing a home in El Paso County, including the Colorado Springs area.

This zero-interest loan provides up to 5% of the main loan amount and acts as a second loan to help with your down payment or closing costs. All Turnkey Plus loans are 30-year fixed-rate.

Fortune told us a unique feature of the program is how the loan balance reduces over time. “Half of the loan goes away after five years if you keep living in the house,” he said. “The other half goes away after 30 years.”

To qualify, you must purchase a home in El Paso County and meet additional requirements based on your loan type.

Turnkey Plus eligibility requirements by loan type

metroDPA program

metroDPA is an assistance program for buyers with annual incomes under $195,600 who are purchasing in one of several approved areas across Colorado, including Denver, Arapahoe and Jefferson counties. The program offers a zero-interest, payment-free, 30-year deferred second loan that covers some or all of your upfront costs. Most borrowers need a credit score of at least 640, though some loan types allow scores as low as 620.

Colorado Housing Assistance Corporation (CHAC)

The Colorado Housing Assistance Corporation (CHAC) was established to help Colorado residents realize the dream of owning their own home. CHAC offers a variety of programs aimed at education and assistance, including a second mortgage loan program.

For first-time homeowners who meet eligibility requirements and are able to pay 1% of the loan from their own funds, CHAC offers a secondary loan to help cover down payment and closing costs through a second loan with manageable monthly payments.

These are the CHAC eligibility requirements:

• No homeownership in the last three years
• Demonstrated need for assistance
• Must use home as your primary residence
• Completion of a homeowner education class

Creative mortgage products

Creative mortgage products like assumable loans or interest-only loans can help those without enough savings for upfront costs or those who don’t meet the eligibility requirements of most homebuyer programs.

These nontraditional loan solutions are designed to solve real-world challenges, said Nicole Rueth, founder of The Rueth Team and a market trends committee member at the Denver Metro Association of Realtors.

Fortune told us: “Creative mortgages work best for people who do not fit into the regular boxes. This could be small business owners, people with strong savings but no steady paycheck, or folks with past credit problems who are now back on track.” But be aware, these types of products have some drawbacks.

Some have payments that go up after a few years. Fortune said, “That can surprise buyers if they are not ready. Other loans may cost more in the long run or have fees that are not easy to see at first. You could even end up owing more than the house is worth if home prices fall.”

Here are a few examples of creative mortgage products:

• 2-1 buydowns: You get a lower interest rate for the first two years to ease into mortgage payments.
• Assumable loans: You take over a seller’s low-rate Federal Housing Administration (FHA) or VA loan.
• Interest-only loans: You pay only interest for the first few years before full payments begin.
• Bank statement loans: Lenders verify your income using bank deposits instead of W-2s or pay stubs.
• Conventional loans based on area median income (AMI): Programs like HomeReady and Home Possible are designed for buyers earning under 80% of the AMI. These programs offer just 3% down, reduced mortgage insurance and better rates than standard loans.
• Rent-to-own: You rent the home now and apply part of the rent toward the purchase price later.
• Shared equity mortgage: A city, program or investor helps fund the home and shares in its future value.
• Shared appreciation mortgage: You don’t pay interest each month. When you sell, you repay the loan plus a share of the profit.

Eligibility and application process

The eligibility and application process for Colorado’s first-time homebuyer programs can vary by provider, but most have common requirements.

In general, down payment assistance programs in Colorado require:

• A credit score of 620 or higher
• Total household income below area limits (which vary by county and household size)
• Completion of a homebuyer education class
• Use of an approved lender
• First-time buyer status (no ownership in the past three years)

» COMPARE: First-time homebuyer mortgage lenders

Homebuyer education and resources

Many mortgage assistance programs require potential home buyers to take a homeowner education class prior to the closing date. The purpose of this is to give new homeowners the best start possible when it comes to such a huge financial undertaking.

Fortune said that during homebuyer education classes, “... you learn how loans work, how much you can afford and what your monthly payments will look like. You also learn how to save money for your down payment and how to build good credit. The class explains how to read your loan papers, what happens during closing and how to avoid common mistakes. It even teaches you how to care for your home once you move in,” he said.

Most down payment programs require this type of class because it helps buyers make smart choices. When you know what to expect, you feel more confident and less stressed. You also have a better chance of keeping your home long-term.

Here are a few options to look into for homeowner education:

• CHFA: Completing a CHFA-approved class is required for CHFA mortgage loans. The CHFA offers both in-person and online homebuyer education classes throughout the state. These classes cover topics like budgeting, understanding credit, finding a real estate agent and the costs associated with buying a home.
• eHome America: You can take a self-paced homebuyer education course online through eHome America. After completing the course, participants must engage in a follow-up call with the education provider to receive their certificate.
• Habitat for Humanity of Metro Denver: You can sign up for a homebuyer education class focusing on insurance, managing money and being a good neighbor through Habitat for Humanity of Metro Denver.