One of the biggest misconceptions about buying a home is that you need 20% down. The good news? That's simply not true.
Depending on your financial situation and the type of mortgage you qualify for, you may be able to purchase a home with as little as 3% down — or even no down payment at all.
If you're thinking about buying a home in Colorado, here's a breakdown of the different down payment options and what you should know before getting started.
What Are the Minimum Down Payment Requirements?
The amount you'll need for a down payment depends largely on the type of mortgage you're using. Here are some of the most common options available to Colorado homebuyers.
Conventional Loans — As Little as 3% Down
Some conventional loan programs allow qualified buyers to purchase a home with just 3% down. Other conventional options require 5% or more, depending on the borrower and loan program.
If you're putting less than 20% down, you'll typically have private mortgage insurance (PMI), which is an additional monthly expense. The good news is that PMI on conventional loans can generally be removed once certain requirements are met.
FHA Loans — As Little as 3.5% Down
FHA loans are popular with first-time homebuyers, but you don't have to be a first-time buyer to qualify.
With a qualifying credit score of 580 or higher, the minimum down payment is generally 3.5%. FHA loans also have mortgage insurance requirements, so it's important to compare the overall monthly payment and costs against conventional financing.
VA Loans — 0% Down for Eligible Borrowers
If you're an eligible veteran, active-duty service member, or qualifying surviving spouse, a VA loan may allow you to purchase a home without a down payment.
VA loans also don't require monthly mortgage insurance, which can make them an attractive option for eligible buyers.
USDA Loans — 0% Down for Eligible Properties and Borrowers
USDA loans offer another potential zero-down-payment option for qualified borrowers purchasing homes in eligible rural and certain suburban areas.
Eligibility depends on factors including household income and the property's location.
Down Payment Assistance Programs
Colorado also has down payment assistance programs that may help eligible homebuyers cover some of their upfront costs.
These programs have specific qualification requirements, and the assistance may come in the form of a grant or a second mortgage that needs to be repaid.
The right option depends on your financial situation, the property you're purchasing, and your long-term goals.
What Does a Down Payment Look Like on a $500,000 Home?
Let's say you're purchasing a home in Colorado for $500,000. Here's what different down payment amounts would look like:
0% down: $0
3% down: $15,000
3.5% down: $17,500
5% down: $25,000
10% down: $50,000
20% down: $100,000
Keep in mind that your down payment is only one part of the money you'll need to purchase a home. There are also closing costs, prepaid expenses, and potentially other upfront costs.
Depending on the loan program and transaction, seller concessions, lender credits, or down payment assistance may help reduce the amount you need to bring to closing.
Your Down Payment Isn't the Same as Your Cash to Close
One thing I always explain to homebuyers is that your down payment and your total cash needed at closing aren't necessarily the same thing.
In addition to your down payment, you'll typically have closing costs and prepaid expenses. These can include lender fees, title fees, appraisal costs, homeowners insurance, and property tax escrows.
The good news is that there may be ways to reduce how much money you need upfront.
For example, you may be able to negotiate seller concessions, use lender credits, or qualify for a down payment assistance program. Every situation is different, which is why I recommend looking at the full picture before deciding how much to put down.
So, How Much Should You Put Down?
Just because you can put 20% down doesn't necessarily mean you should. And just because you qualify for a low-down-payment mortgage doesn't automatically make it your best option.
The right down payment depends on your savings, monthly payment goals, financial priorities, and how much money you want to keep available after purchasing your home.
Sometimes putting more money down makes sense. Other times, keeping additional savings available is the smarter move.
My goal is to help you understand the options so you can make the decision that works best for you.
Have Questions About Buying a Home in Colorado?
I've been helping Colorado homebuyers navigate the mortgage process for over 16 years, and I'm always happy to walk through the numbers.
Whether you're buying your first home or your fifth, we can look at different down payment options, compare monthly payments, and figure out what makes the most sense for your situation.
Ready to explore your options? Schedule a call or reach out at 720-432-1308.