While many people dream of building a custom home on several acres with a view of the mountains or the valley below, many Coloradans have to temper those dreams with a dose of financial reality. We call it the “HGTV Effect,” where people see a home and lifestyle they’d like to adopt. With interest rates and inventories in a state of flux, people need to consider what’s realistic for their first home. We can help you finance your dream build, but it’s really about finding the right fit for your situation. Whether you’re a first-time homebuyer or looking to relocate, we can help you find the right Colorado construction loan, but first there are a few things you’ll need to consider.
The Colorado Association of Realtors reports that the 2026 housing market in Colorado started with higher inventory levels, properties spending more days on the market, and price-sensitive buyers gaining more negotiating power:
“Higher inventory levels, longer days on market, and cost-sensitive buyers reshaped negotiations across the state, giving buyers more choice while forcing sellers to recalibrate pricing and expectations. While conditions varied by region and property type, the dominant theme was stability within a healthier, more sustainable market pace.”
The CAR said many markets in Colorado saw steady or modestly declining prices, and entry-level properties were constrained by affordability and limited inventory, while luxury and resort markets remained insulated from broader economic pressures with support from high-net-worth and cash buyers. It noted that when mortgage rates dropped into the low 6% range, it brought improved sentiment among buyers. For 2026 it expects steady activities and improved alignment between pricing and inventories, while noting that challenges remain over affordability, insurance costs and economic uncertainty.
Option: Buying an Existing Home
Buying an existing home has plenty of appeal, especially for many first-time homebuyers. They’re buying into an established neighborhood, so they can get a good idea of what the community is like. Of course, this also means buyers might have to compromise a little between what they want, what’s available, and their budget. The “perfect” home might not exist where they want to live. Depending on the age of the home and its condition, there could be hidden costs if any replacements or refurbishing are needed when they move in. Someone might buy a home with this in mind, perhaps with the idea of expanding it or upgrading the property to better suit their needs.
Of course, market timing and location are both important factors. The CAR reports that metro markets such as Denver, Aurora, Boulder, and Colorado Springs leaned in favor of buyers for most of last year with longer marketing times, price reductions, and more concessions from sellers. At the same time, the housing market in mountain and resort communities such as Steamboat Springs, Summit County, Telluride, and Vail remained strong from wealthier buyers pursuing luxury properties.
At the end of 2025, the Fort Collins area saw increased listings and sales over the previous year, while attached homes had tighter inventories and softer pricing. “Looking to 2026, falling interest rates, shifting inventory levels, and renewed buyer confidence could turn recent market stability into sustained strength,” the CAR projected.
Additionally, bidding wars have cooled slightly in some areas, such as Greeley, but good inventory of less than $450,000 is still tight. The average home value in Greeley is $418,757, which is a 1.6% decrease from the previous year, according to Zillow, and homes remain on the market for a median of 57 days. Homes in Fort Collins average $556,327, a 1.4% decline from the previous year, and the median was 71 days to a pending sale.
Construction Loans 101
A standard construction loan often requires a 20% down payment on the total cost of a build, but that’s not the case for all of them. There are first-time homebuyer loan programs available that are backed by the Federal Housing Administration (FHA) and the U.S. Department of Agriculture (USDA) that can be obtained for less than a 20% down payment.
All construction loans are based on the “draw” system, where you would make interest-only payments on your loan during construction, with your lender disbursing funds as different stages of the project are completed. Once construction is over, your construction loan will automatically convert to a mortgage, with one closing, and you will start to pay back the loan.
How FHA Mortgages Work in Colorado
FHA mortgages and construction loans in Colorado are issued by local banks like us and backed by the federal government through the FHA. They offer low down payments and closing costs and less stringent credit requirements than conventional mortgages.
They require a minimum down payment of 3.5% for those whose credit score is 580 or more. A down payment of at least 10% is required for those with credit scores of 500. These mortgages also require a debt to income (DTI) ratio of 43%. To calculate your DTI, take your monthly gross income (before taxes and deductions) and divide it by your monthly debt payments. FHA mortgages might be available for those with DTIs of up to 50% if they have sufficient cash reserves and residual income.
The FHA does require mortgage insurance premiums (MIP), which is 1.75% of your mortgage. You could pay this at closing or add it to your mortgage and pay it off over time. The MIP could be eliminated later on by refinancing your loan with a conventional mortgage. FHA maximum loan amounts vary by location and property type. You can check these limits online at the FHA’s website.
How USDA Mortgages Work in Colorado
USDA construction loans are available to qualified buyers in certain rural areas. You can check your location’s eligibility through the USDA’s website. Urban areas such as Greeley, Fort Collins, and their surrounding areas are not eligible. The town of Wellington also isn’t eligible, but more rural areas such as the towns of Haxtun and Julesburg are eligible.
USDA mortgages require no down payment or private mortgage insurance (PMI) and offer a 30-year term. They do require a credit score of at least 640, although those who lack a credit history might still qualify by verifying a consistent payment history for rent, utilities, and insurance. These loans typically allow a maximum DTI of 41%. Those who don’t have a credit history might still qualify by verifying their payment history for rent, utilities, and insurance.
These loans may require a guarantee fee of 1% of the mortgage, which you could pay upfront or add it to your loan. There could also be an annual fee of up to 0.5% of your remaining loan amount that’s added to your monthly payments.
The maximum income limit for these loans is 115% of the median income in the county where the home being purchased is located. Based on data from the U.S. Census, this means the maximum income limit for USDA mortgages in these counties would be:
- Sedgwick County: $60,244
- Phillips County: $74,375
- Larimer County: $107,830
- Weld County: $111, 662
The Rural Factor: Water and Electricity
USDA loan eligibility is a big factor in attracting people to rural parts of Colorado, but there are added costs to building in these areas that must be considered. For example, Wellington draws its water supplies from reservoirs and its own wells, while residents in the surrounding areas rely on their own wells. Haxtun and Julesburg each provide water to their residents through municipal wells.
If you’re buying a property with an existing well, we recommend having it tested before buying, and you may want to have a well water contingency as part of the sale contract. The Colorado Division of Water Resources has a list of licensed water drilling and pump installation contractors available online.
For properties without a water supply, you’re going to need a well permit from the CDWR. Properties of less than 35 acres would be limited to a household use permit (no water for irrigation or animals). Properties of 35 acres or more could be eligible for a permit that allows up to three homes, watering livestock, and irrigating up to one acre-foot per year.
Your cost of drilling a water well could vary considerably depending on the depth required. In the Front Range of Colorado, the average well water depth is 250 feet. Wells in Eastern Colorado can be up to 1,000 feet deep. The drilling costs alone could cost between $30,000 and $60,000, and that’s before the concrete is poured and the pump is installed. You will probably need filtration and disinfection systems. More information on this is available from the Colorado Department of Public Health and Environment. Depending on the flow rate of your well, and your household demand, you might also need your own water storage tanks.
If you’re digging your own well, you’ll also need your own septic system. The cost could range from around $5,000 to $30,000, depending on the size of the home you intend to build, plus the soil conditions and topography of your lot. You’ll need a wastewater treatment permit from the state and your county health department. A water well and septic system will also require maintenance, so you should factor this into the cost of operating your home.
The cost of adding electricity from a utility company in Colorado depends on many factors, such as the distance from your property to an existing electrical line, whether new poles and a transformer will be needed, whether the power lines run overhead or underground, and whether any tree clearing is required. You’ll need a permit from the Colorado State Electrical Board, as well as your local government. We’ve seen ballpark estimates that your costs could range from $2,500 to $12,500, but a certified electrician and your local utility company can give you a better idea on this.
Decision Checklist for Are You Ready to Build?
Building your own home is a big decision and may seem overwhelming. That’s why it’s important to break the whole project down into individual steps.
- Find a place to build. Even if you’re not ready to bid on a lot, you’ll need to have an idea of what it will cost to buy a property. As you’re doing this, think about the type of home you’d like to build. You might take pictures of existing homes that you like or look at them online to figure out what you want so you can present that to an architect.
- Talk to an architect. You’ll need blueprints before you can secure a loan. At some point, an appraiser will provide an estimate of your home’s value based on those blueprints and the local housing market.
- Get estimates from general contractors on how much it’ll cost to build your home and how long it’ll take.
- Secure financing, either through a standard construction loan or one backed by the USDA or FHA. Remember, you’ll make interest-only payments during the construction phase.
- Hire a general contractor. A local contractor can help you with the permitting process and your water, sewer, and electrical needs. Your lender will issue funds in stages based on hitting certain milestones in your construction schedule.
- Be prepared to visit the property as needed to inspect the work and confirm it’s being done according to your intentions. You’ll need to schedule this with your contractor, but you could be doing this once per week.
- When the home is completed, and inspectors from your local building and zoning department have signed off on the work, your construction loan will automatically convert to a mortgage, and you’ll start paying back your loan.
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Whether you’re looking for an already built home or thinking of building your own, our mortgage lending team has seen it all. They understand the local real estate market and can help you consider your options. Please contact a local lender or visit one of our branches to get started. You can also check out our blog for information on a wide range of financial topics.