The Low Down on Down Payments in Denver, Colorado

What is a Down Payment?

A down payment is defined as “an initial up-front partial payment for the purchase of expensive items such as a car or a house. It is usually paid in cash or equivalent at the time of finalizing the transaction.”

Basically, it’s a way to signal to lenders that you are serious about the purchase, and able to offset a portion of the amount of the purchase price, which in turn lowers the amount of the loan.

How Much Do I Need for a Downpayment?

Most buyers think they need a 20% down payment in order to get their home, but that’s simply not true. In fact, those that pay 20% or more are in the far minority of homebuyers, especially first time buyers. We’ll discuss specific down payment assistance programs shortly, but it might be helpful to reference some averages. In 2017, for example, 29 percent of Denver homebuyers put just 3 to 9 percent down. That’s a much more doable number for many, so read on to learn which programs may be right for you.

What is a Down Payment Assistance Program?

Many federal, state, and even local programs exist to help offset the cost of a down payment. Some are for first time home buyers only, or have other specific restrictions, but others are much more accessible.

FHA (Federal Housing Administration)

The FHA Loan us by far the most widely used down payment assistance program. Since the programs allows a down payment of only 3.5% and less than perfect credit, it’s one of the easiest mortgage loans to qualify for. The requirements include: having a verifiable income, an established credit history, a home within the loan limits, and a debt to income ratio of less than 48% (mortgage can not exceed 35% of income).

While the program allows for credit scores as low as 580, we recommend a score closer to 640 or above. This is important because FHA is the lender, not the insurer, and it’s the lender who sets the minimum credit score requirements.

Unlike other loan programs, there’s no requirement for the location of the home. Other less applicable restrictions do apply, so please consult your lender or mortgage broker. If you do not have one, your local real estate agent can refer you to some in the local area.

USDA (U.S. Department of Agriculture)

This program is a zero down payment option. BUT - be mindful as there are significant restrictions!

The USDA issues this loan for homes in specifically qualifying areas deemed ‘rural’. They issue the loan in an effort to develop less urban areas. While you may be thinking of farms and large acreage right now, the loan is far more relevant than that. Many areas deemed ‘rural’ by the USDA are still quite popular, and many home buyers have found suburbs within the eligible area. If you have some wiggle room on exact neighborhood, or you aren’t tied to a specific location for career purposes, this is a loan you may want to consider.

The Department of Veteran Affairs (VA Loans)

An option for current or former military members, spouses or other eligible beneficiaries, the VA Loan Program covers up to 100% of the value of your new home with low closing costs and no private mortgage insurance required. The only real requirement is a credit score of 620+. Unfortunately, there are a couple small drawbacks to a VA loan - a long application process and a VA funding fee.

Good Neighbor Next Door

This program is technically not a loan option, but a 50% discount on your home’s sticker price. It’s available to teachers and emergency personnel ONLY. You must live in the home for at least three years following purchase, and you are allowed to use FHA, VA, conventional or cash. And in case you’re wondering, yes! - if you sell your home after three years, you get to keep all the equity!

There are many other loan options available, including two other federal programs and a host of state-specific programs available to those residing in Colorado.

If you’re unsure of which loan option could work for you, check with your mortgage broker. If you don’t have a broker, your realtor may be able to direct you to one.