One of the major considerations when buying a home is the down payment. A down payment is the amount of money you pay upfront when purchasing a home. It is a percentage of the home’s sale price, and the rest of the payment is usually financed through a mortgage loan. There are different options for down payments and loans associated with them. Let’s explore the pros and cons of each.
CHAFA Down Payment Assistance Program in Colorado
The Colorado Housing and Finance Authority (CHAFA) offers down payment assistance programs to eligible homebuyers (make less than $148,000). The CHAFA loan can be used in combination with a conventional or FHA loan, and it provides up to 4% of the home’s sale price as a grant or a second mortgage. The CHAFA loan can help homebuyers overcome the hurdle of the down payment, but it also comes with its own requirements and restrictions.
Pros:
- Down payment assistance up to 4% of the home’s sale price
- Can be used with conventional or FHA loans
- The down payment assistance portion can be either a 0% interest rate loan OR a free grant
Cons:
- Must meet income and credit requirements
FHA 3.5-5% Down Payment
The Federal Housing Administration (FHA) offers loans that require a minimum down payment of 3.5% of the home’s sale price. The FHA loan is popular among first-time homebuyers and those with lower credit scores because of its lenient credit requirements. The FHA loan also allows the down payment to come from gift funds or down payment assistance programs. However, FHA loans come with mortgage insurance premiums (MIP), which increase the cost of the loan.
Pros:
- Lower down payment requirement
- Lenient credit requirements
- Down payment can come from gift funds or down payment assistance programs
Cons:
- MIP increases the cost of the loan
- Limits on loan amounts in high-cost areas
- Property must meet certain requirements
VA 0% Down Payment
The U.S. Department of Veterans Affairs (VA) offers loans to eligible veterans and their families with no down payment required. The VA loan is an attractive option for those who qualify because it does not require mortgage insurance. However, VA loans have strict eligibility requirements, and not all veterans are eligible.
Pros:
- No down payment required
- No mortgage insurance
- Lower interest rates
Cons:
- Strict eligibility requirements
- Funding fee may be required
- Property must meet certain requirements
Conventional 5% Down Payment
Conventional loans are mortgage loans that are not backed by the government. Conventional loans usually require a down payment of at least 5% of the home’s sale price, but this requirement can vary based on the lender’s guidelines. Conventional loans usually have stricter credit requirements than FHA loans.
Pros:
- No mortgage insurance if down payment is 20% or more
- More options for loan types and terms
- Higher loan limits
Cons:
- Higher down payment requirement
- Stricter credit requirements
- More difficult to qualify for than FHA loans
The down payment is a critical part of the homebuying process, and there are different options for down payments and loans associated with them. Each option has its own pros and cons, and it’s important to consider them carefully before making a decision. Whether you’re a first-time homebuyer or an experienced one, it’s important to work with a trusted lender who can guide you through the process and help you make an informed decision.