An FHA loan is a mortgage issued by FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, which require a lower minimum down payments and credit scores.

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Who is Eligible for an FHA Loan in Colorado?

Anyone is eligible for an FHA loan in Colorado. Unlike VA loans, which are just for veterans, or USDA loans which are just for low-income borrowers in rural areas, as long as you qualify for an FHA loan, you are a candidate.

Many people think FHA loans are only for first-time homebuyers. While it’s a great program for those without equity to use for a down payment, anyone can use the program as long as they buy a home for primary use.

Basic FHA Loan Requirements

FHA borrowers must prove they have the income and credit to qualify, like any other loan. You must be a U.S. citizen and have a valid social security number.

You must also:

  • Have at least a 580 credit score
  • Have at least a 3.5 percent down payment
  • Prove you can make the payments along with your other obligations
  • Prove you’ll live in the home as your primary residence
Credit Requirements for FHA Loans

FHA loans offer one of the lowest down payment options today, but only if you have the right credit score. Fortunately, you only need a 580 credit score to qualify for the low 3.5 percent down payment.

If your credit score falls between 500 – 579, you may still qualify, but with a higher down payment of 10 percent. Some lenders have higher criteria, but plenty of Colorado lenders allow the lower credit scores as long as you meet the other FHA loan criteria.

Debt-to-Income Requirements for FHA Loans

Your debt-to-income ratio is just as important as your credit score. Your DTI shows lenders that you can comfortably afford the payment. While the requirements vary by lender, in general, you need:

  • 31 percent housing ratio (your housing payment shouldn’t exceed 31 percent of your income before taxes)
  • 43 percent total debt ratio (your total debts shouldn’t exceed 43 percent of your income before taxes)
FHA Appraisal Guidelines

You must prove you qualify for the loan, but the property must also pass FHA guidelines. The FHA allows most property types including:

  • Single-family homes
  • Townhomes
  • Condos
  • Manufactured homes (if permanently affixed to the ground)

The FHA has Minimum Property Guidelines each home must pass. While they sound overwhelming, it’s factors most appraisers check on any property. The MPRs make sure the home is safe, sound, and secure.

In short, they check the appliances, mechanical systems, roof, gutter, and the home’s structural soundness. The FHA only insures mortgages in properties in good condition that won’t create a financial nightmare.

Once the appraiser ensures the home is in good standing, he/she determines its value. The home must be worth at least as much as the sales price. If the appraiser determines the home has a lower value or it has defects, you may renegotiate the terms with the seller. Most sellers fix the issues or work with buyers on a solution, otherwise they will lose the sale and have to disclose the issues the appraiser found to future potential buyers.

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