FHA mortgages in Colorado can be the means to purchase a home at an affordable price. Colorado’s FHA loan is especially popular with first-time home buyers and those with less than perfect credit. The Federal Housing Administration (FHA) mortgage insurance program provides government insurance that protects mortgage lenders to a degree, making them more willing to accept the higher risk with these borrowers.
Lenders can also provide flexibility in their FHA loan terms in Colorado and offer low-interest rates for those who want to own a home. The Department of Housing and Urban Development (HUD) outlines the basic requirements for those looking to qualify for a mortgage. These are the three main facets to keep in mind as your eligibility is determined:
- First, you need to have a minimum down payment of 3.5% of the purchase price or the property’s appraised value. Your down payment can be gifted to you from family, an employer, or a grant program.
- Secondly, your credit score must be over 500 to use the program. If you want to take advantage of the 3.5% down payment, then you will need to have a credit score of at least 580.
- Third, your debt to income ratio is limited to between 43% and 50% based on your particular situation. You will need to provide proof of income for the past two years, using check stubs, W-2s, or tax returns.
The benefits of this program are that it provides a flexible funding option for borrowers that might not meet the requirements of conventional mortgage financing. For those with a bankruptcy or foreclosure on their credit record, it is still possible to use the FHA loan program, but there may be additional requirements to meet to qualify.
There are also things to keep in mind before going the route of FHA financing. You need to remember that part of your monthly mortgage payment will be a MIP insurance payment to cover the mortgage insurance that will be there for the life of your loan. Your closing costs will also include an initial payment for your mortgage insurance.
Borrowers will also have limits put on the amount that they can borrow based on their county. The FHA loan program in Colorado defines those limits through HUD, and they are based upon home values within your local area. Throughout the state of Colorado, the FHA loan limit for those looking to purchase a single-family home range from $331,760 to $765,000. Higher limits are available for those looking to purchase a multifamily property, such as a duplex.
By finding an FHA lender, you can begin determining your qualification for an FHA loan program in Colorado. Much of the underwriting process is fairly similar to the conventional mortgage financing process. However, you will have additional paperwork to complete for the FHA loan. Working with your lender, you can determine how much you will be eligible to borrow and even get prequalified before starting your home search.