One of the first steps to buying a house is obtaining financing and this can be a challenge for many. Good news, if you are a first-time home buyer, many programs are available to you as an alternative to a conventional mortgage. With so many options, it can be overwhelming to discern the differences between the programs and determine if you meet the eligibility requirements. Here is a summary of the national first-time home buyer programs and the first-time home buyer programs specific to the state of Colorado.
National first-time home buyer programs
✳️ FHA loans
This is one of the most popular first-time home buyer programs for people with lower credit scores and one of the easiest mortgages to qualify for. If you have a credit score of 580 or higher, the FHA will allow down payments as low as 3.5%. If your credit score falls between 500 and 580, you will need to make a 10% down payment. Mortgage insurance is required for the life of an FHA loan and cannot be canceled.
Positives
Low Down Payment for credit scores over 580
Flexible Credit Score Approval
Negatives
Larger down payment required for credit scores between 580 – 500
Eligibility
3.5% Down Payment minimum
Credit Score of 500 or higher
Works Well For
First time home buyers with low and moderate incomes
People with a low credit score or without a lot of money for a down payment
Mortgages are available to military members, veterans and surviving spouses which are guaranteed by the U.S. Department of Veterans Affairs (VA). Benefits include no down payment or private mortgage insurance required and the closing costs are quite low when compared to conventional mortgages. A VA funding fee is required, and the application process is slightly more complicated, but this option is great for veterans without a lot of money for a down payment.
Positives
No down payment required
Very few closing costs
No PMI private mortgage insurance required
Negatives
The application process is more lengthy than some programs
VA Funding Fee of 1.25 – 2.4% required based on down payment amount
Eligibility
Current or former military member, spouse or other beneficiaries
Credit Score of 620 or higher
Works Well For
Veterans or Active Military without a lot of money for a down payment
✳️ USDA Loans
If you are shopping for a home in a rural or semi-rural community, you might consider a loan from the United States Department of Agriculture (USDA). Like the VA loans, there is no down payment required and approval can be made for those with lower credit scores. You will not be eligible for a USDA loan if your income level is higher than 115% of the current U.S. median income or if you qualify for a conventional loan. Here is a detailed look at USDA loans and How They Work.
Positives
No down payment required
Can be approved with a low credit score
Negatives
Only available to those who don’t qualify for a conventional mortgage
Not available to homes in cities or urban areas
Eligibility
Limited to those who do not make more than 115% of the US median income
Home cannot be in cities or urban areas. The home must be in an eligible rural area.
Works Well For
People looking to live in a rural area with low to middle income.
✳️ Fannie Mae/Freddie Mac
The federal government created Freddie Mac and Fannie Mae in order to maintain liquidity in the mortgage markets. Like FHA these entities guarantee loans made by mortgage lenders. This means they buy back those loans so that the lenders have more money to loan to Future home buyers. Both companies have a number of first-time homebuyer options for individuals with low down payment cash or low credit scores. Both companies offer options with adjustable-rate terms and cancelable private mortgage insurance (PMI).
Positives
Very low down payment required
Can be approved with a low credit score
Many different loans types available
Negatives
May have higher interest rates
Eligibility
Variable income requirements
Works Well For
People with limited money for a down payment, or a low credit score or those who do not qualify for other federal options like the VA loan.
The Colorado Housing and Finance Authority (CHFA) offers purchase and refinance loans, as well as down payment and closing cost assistance for first-time home buyers.
CHFA defines a first-time home buyer as anyone who hasn’t owned or co-owned a home in the past three years. Veterans or repeat home buyers in Colorado can get CHFA loans and assistance if they meet certain requirements.
CHFA General Requirements
All borrowers have a mid-credit score of 620 or higher (CHFA Advantageprogram requires a mid-credit score of 680)
Attend a CHFA-approved homebuyer education class either in person or online prior to loan closing. Required for purchase loan only, not refinancing loans.
Make a minimum required investment of at least $1,000 toward the purchase of the home
In addition to meeting CHFA program requirements, borrowers must qualify according to the underwriting guidelines as determined by one of CHFA’s Participating Lenders.
✳️ CHFA FirstStep Loan
The CHFA FirstStep program CHFA provides access to 30-year, fixed-rate mortgages. Homebuyers don’t need to have a credit score to qualify, but if you do have a credit score, it must be at least 620. As with other CHFA programs, your income can’t be higher than the local median if you want to take advantage of this program.
Positives
Very low down payment required; as little as $1,000
Can be approved with a low or no credit score
Can combine with down payment and closing cost assistance.
Negatives
May have higher interest rates based on down payment amount
Some income limits depending on home location and household size
Eligibility
Standard CHFA requirements
Works Well For
People with limited money for a down payment, or a low credit score or those who do not qualify for other federal options.
✳️ CHFA SmartStep Loan
Designed for borrowers with a credit score of 620 or higher, the SmartStep mortgage program offers CHFA’s lowest mortgage interest rates. You can combine SmartStep with a Mortgage Credit Certificate and down payment assistance for added savings. The CHFA SmartStep program provides down payment assistance for FHA, FHA 203(k), VA and USDA Rural Development loans.
Positives
Very low down payment required; as little as $1,000
Can be approved with a low or no credit score
Not restricted to first-time home buyers
Can combine with a Mortgage Credit Certificate and down payment assistance for added savings.
Negatives
May have higher interest rates based on down payment amount
Some income limits depending on home location and household size
Eligibility
Have a credit score of 620 or higher
Not exceed the statewide median income limit regardless of household size
Have a maximum loan limit within the limit determined by the applicable FHA,VA or USDA-RD guidelines.
Contribute at least $1,000 toward the purchase of the home.
Works Well For
People with limited money for a down payment, or a low credit score or those who do not qualify for other federal options.
✳️ CHFA Preferred Loan
If you can make a 3% down payment and have a 620 credit score, the CHFA Preferred program provides lower mortgage insurance prices. There’s also an option to pay your entire mortgage insurance bill at closing for lower monthly payments. If you don’t have 3%, but have at least $1,000, you can use a CHFA down payment assistance program to make up the difference.
Positives
As little as $1,000 needed toward a down payment
Mid-tier credit score requirements
Cheaper mortgage insurance with the option to pay upfront
Once you reach an 80% loan-to-value ratio, you can also cancel monthly mortgage insurance payments.
Negatives
May have higher interest rates based on down payment
Income limits dependent on home location and household size
Eligibility
A credit score of at least 620 or more
Standard CHFA Requirements
Works Well For
People looking for a low down payment, or those who do not qualify for the CHFA Advantage Loan.
✳️ CHFA Advantage Loan
CHFA Advantage Loan is one of the most straightforward loan types. If you have at least a 680 credit score, this loan offers you fixed-rate mortgages without a private mortgage insurance requirement. A low 3% down payment makes this an attractive option.
Positives
No private mortgage insurance (PMI) requirements
Low down payment
Potential to combine with Mortgage Credit Certificate tax credit to save even more
Negatives
Higher credit score required compared to other CHFA loans
Income limits dependent on home location and household size
Eligibility
A credit score of at least 680 or more
Standard CHFA Requirements
Works Well For
People with a good credit score and limited funds who can’t afford a down payment.
✳️ CHFA HomeOpener Loan
The Home Opener Loan has the same eligibility requirements as the other CHFA loans, but there are no purchase price limits. Higher incomes may qualify for this loan. As little as $1,000 is required for a down payment.
Positives
Mid-tier credit score required
Low down payment
Higher incomes may qualify
Low down payment
No purchase price limits
Negatives
Higher interest rates may apply based on down payment amount
Income limits dependent on home location and household size
Eligibility
A credit score of at least 620 or more
Standard CHFA Requirements
Works Well For
People with a higher income, or shopping for a higher priced home with little money saved for a down payment.
✳️ CHFA HomeAccess Loan
The HomeAccess Loan is designed to assist lower the cost of home ownership for those buyers living with disabilities or a parent of a child with disabilities. As little as $500-$750 is required for the down payment and up to $25,000 is available in down payment assistance.
Positives
Mid-tier credit score required
Low down payment ($500-$750)
Negatives
Additional eligibility requirements
Eligibility
A credit score of at least 620 or more
Standard CHFA Requirements
Must be an adult with a permanent disability as defined by the Social Security Administration or the parent of a child with a permanent disability.
To qualify, your income must fall within 80-100% of the median for your area, including any benefits from federal Supplemental Security Income and Social Security Disability Insurance programs.
Works Well For
People meeting the disability requirement who can take advantage of the low down payment and down payment assistance.
✳️ CHFA Section Eight Homeownership Loan
If you have been using Section 8 rental vouchers for at least 1 year and meet the standard CHFA requirements, the CHFA SectionEight Home ownership loan might be for you. You must also meet the HUD income requirements to qualify for this loan type.
Positives
Low down payment required
Mid-tier credit score
Can combine with additional down payment and closing cost assistance via a CHFA grant
Negatives
Must meet income limits from both CHFA and HUD
Eligibility
A credit score of 620
Have used Section 8 rental vouchers for at least 1 year
Standard CHFA requirements
Meet HUD’s income requirements
Works Well For
People who have been using Section 8 rental vouchers for at least 1 year and are ready to move with a low down payment.
✳️ CHFA Down Payment Assistance Grant
The Down Payment Assistance (DPA) Grant is a grant that can be used to provide further assistance to first-time home buyers. These grants offer up to 4% of the mortgage loan amount to apply towards the down payment and closing costs. For example, if you have a $300,000 mortgage, that means $12,000 toward initial homeownership costs.
DPA grants can help home buyers not only save money upfront but also have leftover funds to improve their new home and start saving for the future. Best of all, you never have to pay the money back.
Positives
No repayment required
Receive up to 4% of your mortgage toward down payment and closing costs
Negatives
Does not count toward minimum down payment requirement
Eligibility
Standard CHFA requirements
Works Well For
Home buyers taking advantage of another type of loan that still needs more assistance with down payment and closing costs.
✳️ CHFA Second Mortgage Loan
If you are in the market for a Second Mortgage, CHFA offers first-time home buyers a second mortgage of up to 5% of their primary loan amount. For example, it means you’d get a $15,000 loan if you have a $300,000 mortgage. The main benefit is that the second loan doesn’t carry any interest, but it does require repayment.
Positives
0% interest
Request up to 5% of your mortgage amount
Has deferred repayment
Negatives
Must be repaid
Eligibility
Standard CHFA requirements
Works Well For
People using CHFA programs that need additional help toward homeownership.
✳️ CHFA Mortgage Credit Certificate
A Mortgage Credit Certificate (MCC) is for first-time home buyers and allows them to claim 20% of their annual mortgage interest as a tax credit on their federal return. To qualify, you’ll need to meet CHFA and HUD income requirements, credit score, and profile requirements. Your remaining interest can be claimed as a home mortgage interest deduction which when coupled with a CHFA loan can be a big cost savings.
Positives
Reduces federal tax bill
Negatives
Must both CHFA and HUD income limits
Eligibility
Standard CHFA requirements
Works Well For
People already pursuing a CHFA loan that need additional help with reducing their federal tax bill.
How to Apply for a National Mortgage Loan Program
FHA, VA and other national mortgage loans programs are so popular because of their low down payment options and low credit score requirements. These programs make home ownership possible for people with less than perfect credit and limited savings for a down payment.
To apply for one of these programs, you can get started with the following tasks.
Get a copy of your credit report and check for errors
Check your credit score
Get pre-approved before starting the house hunting process
Hire an experienced REALTOR®
Become familiar with the Federal Loan requirements
Fully understand all of your homeownership and living costs and have a budget in mind
Find a reputable Lender and ask about national and state programs for first-time home buyers.
How to Apply for a CHFA Loan Program
If you are a resident of Colorado and believe that you are eligible for a CHFA loan, the best place to start is with a reputable lender. If you do not have a lender that you are working with, talk to your Realtor, or give us a call and we can give you some lenders that specialize in CHFA loans. Here are some steps to get you started.
You must complete a CHFA-sponsored homebuyer education class before closing on your home loan under a CHFA program. It is recommended to take the class early in your search so that you are prepared to find a lender and real estate agent who are the best fit for you.
Contact a CHFA Participating Lender:
CHFA loan programs are available through our statewide network of CHFA Participating Lenders. A CHFA Participating Lender will help you determine which CHFA loan programs will work for you. They will walk you through the entire loan process from application to closing.
