At the national level, the median price of homes sold is roughly $320,000, according to the U.S. Census, making Colorado slightly more expensive than the rest of the country.
As the states’ population levels maintain their upswing and growing local economies, including legal cannabis sales, and outdoor recreation that fuel business and real estate expansion, mortgage rates in Colorado may undergo continual adjustments.
Prospective homebuyers should likewise understand the macroeconomic factors that lenders take into consideration during home loan negotiations.
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Mortgage Rates in Colorado
Mortgage Rate Factors in Colorado
When researching mortgage options in Colorado, borrowers must understand the economic landscape they face as well as the fine print on the mortgage rates for which they may qualify.
Just a fractional disparity in interest rates can produce tens of thousands of dollars in savings over the course of a 30-year mortgage. Taking Colorado’s median home price of $356,700 into account, a 4% mortgage rate equals $14,268 of pure interest, but a 4.5% rate equals $16,051 in interest.
Seven factors to keep in mind when shopping around for the best mortgage or refinance rates in Colorado include:
Borrower Profile
It’s standard practice for lenders to distill common borrower traits into distinct buyer profiles. These profiles effectively represent how risky a borrower may be, incorporating such factors as student loan debt, credit score, credit history, employment history, previous foreclosures, and even vague or incomplete details given in a loan application.
Should the totality of a borrower profile paint a picture of risk, lenders may offer less-generous mortgage terms including higher interest rates, the mandating of mortgage insurance, and a sizeable down payment.
Down Payment
A down payment influences a borrower’s current and future interest rates. Under conventional loan terms, a more substantial down payment results in a lower interest rate, as the borrower has proven that he or she is capable of making payments, which, in the eyes of a lender, reduces the likelihood of a borrower defaulting on the loan.
While a 20% down payment is an industry-standard, borrowers can qualify for smaller down payments by purchasing mortgage insurance or using down payment assistance programs provided by lenders, among other tactics.
Type of Loan
Lenders extend a variety of mortgage types based on the needs and financing capabilities of borrowers. An adjustable-rate mortgage (ARM) typically starts with a low-interest rate, which then adjusts upward after a five-, seven, or 10-year period.
A fixed-rate mortgage, on the other hand, locks in a specific interest rate for the duration of the loan. With either type of loan, a larger down payment and a smaller home loan amount can typically keep mortgage rates on the lower end.
Other types of mortgages like VA, USDA, or construction loans have unique interest rate terms, potentially ranging from 0% to 30%.
Amount of Loan
In general, cheaper homes warrant cheaper mortgages. Extending a $500,000 loan is riskier than lending one that is $200,000. Moreover, since the amount of the loan is smaller, so too may be the down payment and the interest rate.
Lenders need to recoup less money when issuing smaller loans, so the incentive to charge higher rates is minimized. Homebuyers insistent on purchasing higher-priced homes can still avoid high-interest rates by putting up a sizable down payment and locking in an agreeable rate early on.
Type of Interest Rate
Interest rates often come down to, among other factors, whether the rate terms are structured as fixed or adjustable.
Fixed interest rates require borrowers to pay a certain percentage of interest every month on top of their recurring mortgage balance – the rate is the same month over month, which can help borrowers with budgeting and financial planning, making it a popular option.
Adjustable interest rates are variable, meaning the percentage of interest paid each month changes over time. If a lender raises rates, or the loan terms dictate a rate adjustment after a certain period (five years, for instance), borrowers will pay more each month.
Loan-to-Value
This metric is defined as the amount a borrower owes on a home versus the appraised value of that home. Should a borrower still owe $200,000 on a $300,000 home, his or her LTV is about 33% (33% of the loan has been paid down, with 66% still to go)?
Lenders use different benchmarks to determine what LTV range they’re comfortable with and whether they will require a borrower to purchase mortgage insurance; most use an 80% LTV standard. By reducing one’s LTV, a borrower can potentially refinance into better terms with lower interest rates.
Type of Residence
Certain property types are deemed riskier, as Fannie Mae notes. While a single-family home is often viewed as a safe and calculated investment, condos, manufactured units, and multiunit structures come with added risk for lenders.
As such, securing a lower interest rate via refinancing a condo may be more difficult than when refinancing a traditional home – interest rates are typically 0.25 percentage points higher for the former.
Because Colorado has extensive rural and urban real estate options, borrowers should determine which part of the state they prefer to live and which type of residence they intend to purchase (or refinance down the road), as these factors will influence mortgage rates offered by lenders.
How to Get the Best Mortgage Rates in Colorado
Comparison shopping is part of the home buying and refinancing process, and it’s one of the best ways to save money. This fundamental fact is unfortunately overlooked by a broad swath of the consumer population.
The Consumer Financial Protection Bureau notes that 47% of mortgage borrowers don’t shop around at all and only speak to one lender.
As mentioned before, a difference of a few percentage points on a home loan can either save or waste thousands of dollars, so examining every interest and mortgage type from multiple lenders is really the only way to ensure one is receiving the best possible deal.
Being informed keeps borrowers abreast of relevant industry trends, economic factors, and local market conditions that may impact what lenders are offering at that time. Similarly, recruiting the help of an agent can also go a long way toward compiling and reviewing all the pertinent details of a property and the mortgage it will take to purchase it.
Because much of the mortgage and refinancing process is negotiable, borrowers should thoroughly survey their options concerning the aforementioned critical elements that are in play.
Beyond items like down payments, loan amounts, and borrower profiles, consumers should ask lenders to clarify their fees. From start to finish, purchasing or refinancing is wrought with fees of all kinds concerning origination, appraisal, application, title insurance, document preparation, and more.
Depending on the financial institution, a portion of these fees may be waived or reduced.
Recommended Mortage Lenders in Colorado
Top lenders in Colorado include:
- Quicken Loans: As the nation’s largest mortgage lender, Quicken Loans extends loans to borrowers in all 50 states. The financial institution provides daily mortgage rates updates for fixed-rate, adjustable-rate, FHA, and VA loans. It has also ranked atop J.D.Power’s Primary Mortgage Origination and Mortgage Servicing lists for the past eight and five years, respectively.
- LendingTree: Providing free credit scores, real-time mortgage rates, and intuitive city search functionality, LendingTree makes the real estate search and home buying process convenient. It offers mortgages of every kind, along with options for equity loans and refinancing.
- Ally Bank: Online-only Ally Bank offers 30-year fixed-rate mortgages in Colorado for as little as 4.875%. Estimated credit scores the bank commonly accepts are in the 740-759 range, and homebuyers can prequalify and apply for home loans online in a matter of clicks.
- New American Funding: By stating the precise rate factors it takes into consideration, New American Funding is transparent with what it requires from borrowers, which speeds up the application and loan process. With mortgage rates as low as 4.25% on fixed-rate loans, the financial institution is one of the go-to lenders for most borrowers, and the bank holds an A+ rating from the Better Business Bureau.
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