Colorado Down Payment Assistance: Buy a Home with $0 Down
Saving enough money for a down payment on your first home can seem like mission impossible but what if I told you that you likely already have enough funds to make it happen?
Accumulating 20% in savings to put down on a home isn’t in the cards for a lot of folks especially with Colorado’s high rent prices and overall cost of living. The good news is that a 20% down payment isn’t a requirement and we’ll cover ways you can buy a home with no money down.
The 20% Down Myth
The idea of needing to save 20% for a down payment gets thrown around a lot as the minimum amount you want saved in order to qualify for a home. While having a 20% down payment does bring with it the benefit of not requiring mortgage insurance, it isn’t necessary.
Conventional loans: For first time homebuyers, you can acquire a conventional loan with as little as a 3% down payment. Don’t have the 3% saved up – there are options available to cover that too.
FHA Loans: offer financing with as little as a 3.5% down payment. And just like with conventional loans, if you don’t have the 3.5% saved up – there are options to help cover that.
VA Loans: For those who have served in the military – the VA loan offers financing without the need for a down payment and should be your first consideration when comparing loan options.
USDA Loans: offers Rural Development loans that also don’t require a down payment but are restricted to rural areas identified by the USDA and come with the requirement that you don’t exceed their income limit guidelines.
How Down Payment Assistance Can Help
There are lots of great down payment assistance programs available in Colorado that can help you with securing the down payment for your first home purchase. The other good news – some of these programs aren’t restricted to just first-time buyers.
While the names and specifics of each program are unique, their functionality is the same – providing down payment assistance to qualified individuals to assist them in purchasing a home either through the form of a forgivable grant or a 2nd mortgage.
Where these programs really shine is for those situations where you know you can afford the new mortgage payment but just don’t have the funds to cover the down payment.
What’s the difference between a grant or a 2nd mortgage?
Some of these programs offer down payment assistance in the form of a forgivable grant whereas others offer the assistance in the form of a second mortgage. All things being equal – the programs with the forgivable grant are typically the better option but not always.
With the grant programs the funds that you receive don’t need to be repaid provided you meet the requirements of the program. Some of the programs offer grant funds that are immediately forgiven at closing whereas others may require that you occupy the home for a certain period of time before the forgiveness occurs.
With the second mortgage down payment assistance options, you are required to repay the funds at some point in the future. Those repayment terms are often very favorable, such as, no payment required for the first 30 years of the loan with a 0% interest rate but can vary greatly depending on the program.
Although it isn’t written in stone, typically the down payment assistance programs with grant funds come with a higher interest rate on the first mortgage when compared to the interest rates available on the programs that require you repay the down payment assistance. It is important to weigh the merits of each program as the right choice will depend on your unique circumstances.
What it takes to qualify?
The programs do a great job of providing funds to help with the down payment, but they will still require that you qualify for the financing.
Here are some of the typical hurdles we will need to clear:
Credit Scores – typically we need a credit score at or above 620 to qualify for these programs.
Income Limits – some programs have strict income limits often based on the household size whereas other programs have no limits at all.
Homebuyer Education – most of the down payment assistance programs will require you to complete either an in-person or online homebuyer education program. The specific requirements change depending on the program, but all the educational courses are focused on ensuring your understanding of the homebuying process.
First Time Homebuyers – some programs are restricted to first time homebuyers but that is usually the exception, not the rule. They will want to ensure you are buying a primary residence but having previously been a homeowner or still owning the home won’t exclude you from most programs.
Don’t Assume You Don’t Qualify
One of the biggest mistakes that I see potential first-time homebuyers make is to assume that they don’t qualify for financing. It’s important to talk to a local trusted mortgage professional and explore all the financing options available to you. The right professional will be able to guide you through the maze of all the different programs and set you up for success.
