First-Time Homebuyer Programs – Denver

Jason Kauffman | June 24, 2024

When it comes to purchasing a home, our buyers often face the challenge of securing enough funds for a down payment. Two common solutions to this problem are down payment assistance programs and low-down payment loan programs. While both options aim to make homeownership more accessible, they cater to different needs and offer distinct benefits.

Down payment assistance programs are designed to help buyers cover the upfront costs associated with purchasing a home. These programs typically come in the form of grants, second mortgage loans, or deferred loans and are often provided by state and local governments, non-profit organizations, or employers.

Key Benefits of DPA Programs

• Grants and Forgivable Loans: Some DPA programs offer grants that do not require repayment or loans that are forgivable after a certain period of homeownership, reducing the financial burden on the buyer.
• Supplementing Savings: These programs can supplement a buyer’s savings, making it easier to meet the down payment and closing cost requirements.
• Flexible Eligibility: DPA programs often have flexible eligibility criteria, including income limits and first-time homebuyer status, making them accessible to a broader range of potential buyers.

In contrast, low-down payment loan programs, such as those offered by Fannie Mae/Freddie Mac, FHA, VA, and USDA, allow buyers to secure a mortgage with a smaller initial investment. These loans are particularly beneficial for buyers who may not qualify for down payment assistance but still need help with upfront costs.

Key Benefits of Low-Down Payment Loans

• Lower Initial Investment: These programs require significantly lower down payments, sometimes as little as 3% of the home’s purchase price, making it easier for buyers to enter the housing market.
• Broad Accessibility: Low-down payment loans are accessible to a wide range of buyers, including those with lower credit scores or limited savings.
• Government Backing: Programs like FHA, VA, and USDA loans are backed by government agencies, providing additional security to lenders and often resulting in more favorable loan terms for buyers.

Choosing between down payment assistance and low-down payment loan programs depends on individual circumstances, including financial situation, eligibility criteria, and long-term homeownership goals. Down payment assistance is ideal for those who qualify for specific grants or deferred loans, while low-down payment loans are suited for buyers looking for lower upfront costs without the need for supplementary programs.

By understanding the differences and benefits of each option, buyers can make informed decisions that best support their journey to homeownership. For more information on the specific programs available in your area, consult with a mortgage advisor or explore resources from local housing authorities.

We frequently get calls from potential buyers that want to better understand first-time homebuyer programs. A good starting point is to understand how many of these programs work and what the potential benefits are for buyers that qualify.

Low Down Payment Programs

Many homebuyers come to us under the impression that a substantial 20% down payment is required to purchase a home. However, there are several low down payment loan programs available that make homeownership more accessible, with down payments as low as 3%. These programs cater to a variety of financial situations and have different eligibility criteria. Below, we outline the most popular low down payment loan options and some of their qualifying parameters to help you navigate your home buying journey more effectively.

FHA Loan Program

The FHA loan program was established in 1934 during the Great Depression to stimulate the housing market and improve homeownership. The Federal Housing Administration (FHA) was created to insure mortgages issued by approved lenders, reducing their risk and encouraging them to offer loans to more people. This made it easier for low- and middle-income families to obtain home financing with lower down payments and flexible credit requirements.

FHA loans continue to be an excellent option for first-time and repeat homebuyers. There are no income limits for FHA financing, you do not have to be a first-time buyer, and there is a minimum down payment requirement of 3.5% of the purchase price. Moreover, FHA has more flexibility than conventional financing when it comes to lower credit scores and derogatory credit.

Fannie Mae (HomeReady) and Freddie Mac (Home Possible) Programs

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs are both designed to help low-to-moderate income borrowers with affordable mortgage options, but they have some key differences:

Fannie Mae’s HomeReady

• Income Limits: Up to 80% of the Area Median Income (AMI) for the property location.
• Down Payment: As low as 3% of the home’s purchase price.
• Credit Requirements: Typically requires a minimum FICO score of 620.
• Homeownership Education: Required for at least one borrower through an online course.

Freddie Mac’s Home Possible

• Income Limits: Up to 80% of AMI, but in underserved areas, there may be no income limits.
• Down Payment: As low as 3% of the home’s purchase price.
• Credit Requirements: Minimum FICO score of 660 generally preferred.
• Homeownership Education: Required for first-time homebuyers through a qualified education course.

Common Features

• Mortgage Insurance: Both programs require private mortgage insurance (PMI) for down payments less than 20%.
• Flexible Sources of Funds: Allow for down payment and closing cost assistance from multiple sources, including gifts and grants.

These programs aim to make homeownership more accessible through lower down payment options and flexible underwriting standards.

USDA Loan Program

The USDA Guaranteed Loan Program helps moderate-income families purchase homes in eligible rural areas. Supported by the U.S. Department of Agriculture, it promotes rural homeownership with no down payment, competitive interest rates, and flexible credit guidelines.

This loan is limited to eligible rural locations. Currently, there are no USDA-eligible areas in Denver and most surrounding counties. However, some areas to the northeast and southeast of the Denver metro area are eligible.

Key Benefits and Eligibility

• The USDA Guaranteed Loan allows financing up to 100% of the home’s purchase price, eliminating the need for a down payment.
• It offers competitive fixed interest rates and doesn’t require private mortgage insurance (PMI).
• To qualify, household income should generally not exceed 115% of the area’s median income, and the property must be in an eligible rural area as defined by the USDA.

Application Process

Applicants work with approved lenders to assess eligibility, demonstrating stable income and reasonable credit history. The USDA guarantees the loan, reducing the lender’s risk and facilitating favorable terms for borrowers.

The USDA Guaranteed Loan Program is a great option for moderate-income families aiming for homeownership in rural areas, providing affordable, accessible financing.

Down Payment Assistance Programs

Down payment assistance programs are designed to help bridge the gap for homebuyers who may struggle to meet the upfront costs of purchasing a home. These programs offer financial support in the form of grants, low-interest loans, or deferred payment options, making homeownership more attainable. Here we provide an overview of the available down payment assistance options in the broader Denver metro area and the criteria for eligibility, ensuring you have the resources needed to take the first step toward owning your home.

CHFA Down Payment Assistance Program

The Colorado Housing and Finance Authority (CHFA) offers several loan programs aimed at assisting Coloradans with affordable homeownership and down payment assistance.

Down Payment Assistance Types

CHFA provides two main options for down payment and closing cost assistance:

• Down Payment Assistance Grant: Offers up to 3% of the first mortgage amount with no repayment required.
• Second Mortgage Loan: Provides up to 4% of the first mortgage amount. Repayment is deferred until the first mortgage is paid off, the home is sold, refinanced, or is no longer the primary residence.

CHFA rates and loan costs can be higher than a traditional low down payment assistance loan. When deciding whether to utilize a down payment assistance program, every buyer should work with their loan originator to explore options with and without down payment assistance to ensure the program they are choosing is the best fit for their situation.

CHFA Program Overviews

• CHFA Preferred and CHFA Preferred Plus
  • Type: Conventional loans
  • Down Payment Assistance: Grant or second mortgage loan
  • Eligibility: Not limited to first-time homebuyers
  • Income Limits: $162,960, no purchase price limit
  • Credit Score: Minimum 620
• CHFA SmartStep and CHFA SmartStep Plus
  • Type: FHA, VA, USDA-RD loans
  • Down Payment Assistance: Second mortgage loan
  • Eligibility: Not limited to first-time homebuyers
  • Income Limits: $162,960, no purchase price limit
  • Credit Score: Minimum 620
• CHFA FirstStep and CHFA FirstStep Plus
  • Type: FHA loans only
  • Down Payment Assistance: Second mortgage loan
  • Eligibility: Restricted to first-time homebuyers, qualified veterans, or buyers in targeted areas
  • Income/Purchase Price Limits: Specific limits apply
  • Credit Score: Minimum 620
• CHFA FirstGeneration and CHFA FirstGeneration Plus
  • Type: FHA loans only
  • Down Payment Assistance: Second mortgage loan up to $25,000
  • Eligibility: Restricted to first-time and first-generation homebuyers
  • Income/Purchase Price Limits: Specific limits apply
  • Credit Score: Minimum 620

Homebuyer Education

All borrowers participating in CHFA loan programs are required to complete a homebuyer education class independently. These classes must be taken through CHFA-approved providers, which offer online, interactive webinar, and in-person options. For those opting for online classes, a follow-up session via phone is mandatory. The education certificates are valid for 12 months prior to the purchase contract date and are issued by the provider upon completion, not by CHFA.

The Colorado Housing and Finance Authority (CHFA) is one of the oldest down payment assistance programs in Denver (and the state of Colorado), having been established in 1973. Their long-standing presence and range of services have made them a significant resource for Colorado residents seeking homeownership​

CHAC Down Payment Assistance Program

The Colorado Housing Assistance Corporation (CHAC) offers a down payment assistance program designed to help low- and moderate-income first-time homebuyers in Colorado. This program provides financial support to cover the down payment and closing costs associated with purchasing a home, thus making homeownership more accessible.

Key Features of the CHAC Program

• Low-Interest Loans: CHAC offers low-interest, flexible second mortgages. These loans are recorded as a second lien on the property being purchased and require repayment, typically with monthly payments. The interest rates and terms can vary based on the geographic location and funding availability.
• Traditional 1st-mortgages: CHAC second mortgages are allowed to be paired with traditional FHA, VA, Conventional, and USDA mortgages. This sets the CHAC down payment assistance apart from other down payment assistance programs that typically have higher rates and fees on their first mortgage than traditional (non-DPA paired) first mortgages.

Eligibility Requirements

• First-Time Homebuyers: Applicants must be first-time homebuyers who have not owned a home in the past three years.
• Income Limits: Applicants must meet specific income limits based on family size and location. Income is calculated forward and includes all household income sources.
• Minimum Contribution: Borrowers must contribute a minimum of 1% of the home’s sales price from their own funds (reduced to $750 for the disability program). Gift funds are not permitted to meet this requirement.
• Homebuyer Education: Participation in a CHFA/CHAC-approved first-time homebuyer class is mandatory before the CHAC application can be approved. Additionally, an individual borrower counseling session with CHAC is required prior to closing.

Loan Amounts and Terms

• Loan Amounts: Up to 6% of the home’s sales price or appraised value with a maximum limit of $12,000.
• Repayment Terms: Loan terms range from 12.5 to 30 years with interest rates from 0% to 5.5%.
• Property Requirements: The property must be intended as the buyer’s primary residence and cannot have been tenant-occupied for the previous 90 days unless the tenant is the buyer. A standard home inspection is required, and all health and safety issues must be addressed.

CHAC has been supporting homebuyers since 1982, helping over 10,000 families achieve homeownership and providing necessary education and counseling services. This program aims to make homeownership affordable and sustainable for low- to moderate-income households across Colorado.

metroDPA Down Payment Assistance Program

The metroDPA program is designed to assist prospective homebuyers in the Denver Metro area (and participating cities and counties up and down the front range) by providing down payment assistance. It is aimed at making homeownership more accessible and affordable, particularly for those who might struggle with the upfront costs of purchasing a home. One of the best features of the metroDPA program is that the down payment assistance is forgivable over a 3-year period.

Eligibility Criteria

• Income Limits: Applicants can earn up to $188,250 per year.
• Credit Score: A minimum credit score of 640 is required (sometimes 620).
• Geographic Scope: The program is available in various cities and counties within the Front Range, including but not limited to Denver.

Assistance Details

• Amount: The program provides a percentage of the mortgage loan amount for down payment assistance with no interest charged. The amount provided depends on what type of first mortgage you are obtaining, and there are lower interest rates for homes purchased in Denver through the Denver Advantage sub-program.
• Forgiveness: The assistance is forgivable after three years if the homeowner stays in the home. Every month of ownership that passes, 1/36th of the assistance is forgiven. After 36 months, the full balance is forgiven.

Usage

The funds can be used for down payment, closing costs, and/or prepaids.

The metroDPA down payment assistance program is an attractive DPA program due to its competitive rates and the “forgivability” of the second mortgage. Spend some time with your loan originator to understand the benefits of this program as it compares to other Denver metro down payment assistance programs.

Conclusion

Navigating the landscape of homeownership can be daunting, especially for first-time homebuyers in Denver. Understanding the available programs and how they can alleviate the financial burden is crucial. Down payment assistance programs and low-down payment loan programs serve as valuable resources, each tailored to meet different needs and financial situations. Whether you qualify for grants and forgivable loans through DPA programs or opt for lower initial investments through Conventional, FHA, VA, and USDA loans, both paths offer unique benefits that can make homeownership more attainable.

It’s essential to assess your eligibility, financial standing, and long-term goals when choosing between these options. Engaging with a knowledgeable mortgage advisor can provide clarity and help you determine the best route for your specific circumstances. By leveraging these programs, prospective homeowners can take confident steps towards achieving their dreams of owning a home.

For more detailed information on specific programs and to explore which option suits you best, consult with one of the licensed originators at Uptown Mortgage. They can guide you through the pre-approval process and ensure you make informed decisions that align with your homeownership goals.