It isn’t hard to see why so many people are drawn to Southwest Colorado. From our bluebird skies and breathtaking mountain scenery to our world-class outdoor activities and historic charm, a long list of things make living in the area a complete dream. 

However, finding the perfect location to set down roots is only the beginning. Determining how you will finance and secure a mortgage for your dream home is critical to making it a reality. This article discusses financing options in Colorado, various down payment assistance programs, tips to secure a mortgage, and some excellent home financing resources for first-timers.

What Financing Options are Available?

A mortgage is a loan from a bank or other financial institution that allows a borrower to purchase real estate. This legally binding agreement outlines the amount to be paid each month, including interest, for the life of the loan. The typical mortgage lasts for 15 or 30 years. If a borrower cannot make mortgage payments, the lender has the property as collateral and may repossess it.  

Mortgage rates are determined by various factors, like inflation and unemployment, and they fluctuate daily. Your credit score also impacts your interest rates along with your loan-to-value ratio, which compares the amount borrowed to the property’s value. 

Popular financing options in Colorado include the following:

VA loans are provided by the U.S. Department of Veterans Affairs for active service members, veterans, and their families to make the financial burden of purchasing a home less cumbersome. With a VA loan, borrowers can buy a home with 0% down, lower interest rates, and no requirement for mortgage insurance. In Colorado, homes with a ten-year insured protection plan must also include the basement slab for the first four years as part of the coverage.

FHA loans are popular with first-time home buyers as they lower credit, debt-to-income, and down payment requirements. If you have a credit score of at least 580, you are only required to put 3.5% down. Some common FHA loan types include fixed-rate FHA loans, adjustable-rate FHA loans, FHA energy-efficient mortgages, and FHA 203 (k) loans.  

USDA loans are the only mainstream lending option with zero down for non-military buyers. This option is available to rural and suburban homebuyers, and the zero down 100% financing means less out-of-pocket expense than other options.

Conventional loans are ideal for homebuyers with a strong credit score and healthy down payment funds. These loans save in the long run because they offer more competitive interest rates, and the LTV ratio is better.

Down Payment Assistance Programs for Colorado Home Buyers

If you don’t qualify for a zero-down loan, you may wonder if there are options to assist you with making a down payment on a home. There are various grants and down payment assistance programs that you can research to see if they match your qualifications and needs. Here are a few places to look.

Colorado First Time Home Buyers offers $3,600 to $15,000 grants to first-time buyers in the state. This down payment assistance program can save thousands of dollars and help fulfill the dream of homeownership for many.

USA Grant Applications offers a range of grants, including real estate. There is no limit to the number of grants you can apply for.

Teacher Next Door offers down payment assistance and other financial programs for teachers across the entire State of Colorado.

Tips to Secure a Mortgage

Qualifying for a loan doesn’t have to be painful. With some planning and discussion with your  local lender, you can qualify for a loan that fits your needs. Follow these tips to help secure a mortgage in sunny Southwest Colorado!

  1. Check and fix your credit score – If your credit score isn’t great, you must pay down your debts and pay on time. Also, don’t make a significant purchase or open a new line of credit in the months leading up to when you plan to apply for a home loan.
  2. Follow the 28/36 rule – You must keep your expectations realistic. Following the 28/36 rule, where you don’t spend more than 28% of your gross income on housing costs and aim to stay under 36% on all debt costs, will help you find the appropriate amount you can afford. If your ratio is too high, consider a more affordable option. 
  3. Select the appropriate mortgage type – Learn about the different financing options to help decide which fits your situation best. 
  4. Have your ducks in a row – There are several pieces of documentation you must have to apply for a loan. You will need the following: income verification, proof of assets, and a list of liabilities, plus any additional paperwork, such as child support documentation or canceled rent checks. 
  5. Shop around – Take time and assess all of your offers. You want to ensure you find the best fit, provided the years of commitment you are signing up for.

The Best Financing Resources in Southwest Colorado

If you would like to learn more about the ins and outs of purchasing a home in Colorado, there are a few beneficial resources to get you started. 

HomeFunds– This program specializes in affordable housing programs and offers educational and housing counseling opportunities. 

Chafa– This program offers a statewide network of approved lenders as well as loans, grants, and assistance programs to help close the housing gap. Their website is full of resources and tools to help you. 

WG affordable housing – The Wells Group provides various resources and opportunities for first-time home buyers. Their Path to Homeownership Class is free and teaches you everything you need to know about currently available mortgage and down payment assistance programs.

Want to chat more about finding your perfect home in Southwest Colorado?

Contact Team North Star today. We’ll be happy to provide you with our top lenders and support you in your home buying journey.