FHA Loans
Colorado
Buying your first home is an exciting milestone, but it can also be scary, considering the prices of homes in Colorado. Since most first-time homebuyers cannot afford to pay cash for their first houses, they mostly rely on other financing options like a home loan.
Unfortunately, conventional home loans can be difficult to acquire for many first-time buyers. The eligibility criteria are difficult to achieve for many prospective borrowers, so they are discouraged from purchasing their first homes.
This is especially true for Colorado’s significant LGBTQ+ population, which comprises about 8.9% of the population. While Colorado is known as a bastion of social progress, with an incredible 43 out of 44.5 on the Movement Advancement Project’s Equality Score, this does not entirely overcome the many systemic issues that LGBTQ+ individuals face, such as discrimination in the mortgage industry and less financial success.
Colorado’s small BIPOC population may also face additional barriers to building wealth through homeownership, but FHA loans can help make up the difference.
If conventional loans are out of reach, there are other, more affordable types with fewer loan limits, such as Colorado FHA loans.
What Are FHA Loans?
An FHA loan is backed by the Federal Housing Administration (FHA). The FHA falls under the US Department of Housing and Urban Development umbrella. With the backing of the FHA, these loans are given by FHA-approved lenders to borrowers who may not qualify for conventional loans.
Because of the government’s involvement in FHA loans, participating private lenders can relax their qualification standards, allowing more borrowers to achieve their dreams of homeownership. A Colorado FHA loan is ideal for a first-time homebuyer struggling to save for a large down payment or has a less-than-perfect credit score.
The FHA program has been a crucial way for marginalized individuals to build wealth, even in places like Colorado, which has a strong focus on fighting racism and ensuring equal access to funding.
BIPOC borrowers are significantly more likely to be approved for an FHA loan than a conventional mortgage product, and HUD has also led the way in ensuring access to mortgages for LGBTQ+ people. In 2012, the department updated its guidelines to prevent discrimination based on actual or perceived gender identity or sexuality; every company that provides government loans must adhere to this rule, which has had ripple effects throughout the mortgage industry. It also updated its guidance on the Fair Housing Act in 2021 to more strongly assert HUD’s commitment to protecting LGBTQ+ individuals from discrimination.
Even though the homeownership gap between BIPOC individuals and White homeowners is growing due to social inequity, FHA loans represent a way to improve diversity in housing opportunities for everyone, including those from minority groups.
Benefits of Federal Housing Administration Loans in Colorado
To apply for an FHA loan in Colorado, you should understand this program's primary benefits. Here are the essential advantages of an FHA loan.
Small Down Payment Options
FHA loans typically have down payment requirements as well. Usually, you need a down payment of 3.5% of the home’s purchase price to qualify for an FHA loan. Remember, the larger your down payment, the less money you will have to put toward the principal and interest for the life of the loan. This is a much-needed relief for buyers in Colorado, especially with the median sale price of a home sitting at $602,900 in this state.
Additionally, Pride Lending will help you find local, state, and national down payment assistance programs to help you make up the difference.
In Colorado, one option we can help you pursue is the down payment assistance grant from the Colorado Housing Finance Agency, which can provide up to $25,000 or 3% of the purchase price, whichever is less. This does not need to be repaid, which is a great relief to borrowers. There are also local programs in places like Boulder, Aurora, and Denver that can provide even more funding.
Competitive Interest Rates
If you are interested in an FHA loan in Texas, then you should understand the benefits of this option. Here are a few advantages Texas homebuyers will experience with FHA loans.
Flexible Underwriting Guidelines
Underwriting is the process of evaluating a borrower’s risk. Since these borrowers are in more precarious financial situations, most applications are underwritten manually. What loan officers look for during the underwriting process is usually more flexible with FHA loans, whereas a conventional product would have more strict requirements.
Assumable Mortgages (Buyer Can Take over Existing FHA Loan)
An FHA mortgage on a house in Texas may be eligible as an assumable mortgage for a new buyer. Essentially, instead of taking out a new loan to buy a house, you take over the debt and payments for an existing FHA mortgage and become the new owner of the house. This is an excellent option for people with spotty credit reports.
FHA Loan Requirements
Every lender will have their own requirements for the FHA program. However, the typical Texas FHA loan requirements are as follows.
Minimum Credit Score
To qualify for an FHA home loan, you should aim for a credit score of 580 or better, as they will allow you to access the best rates and lowest upfront expenses. Lenders approving FHA mortgages may allow for scores as low as 500 if they offer at least 10% upfront.
Down Payment Amount
As mentioned previously, the minimum down payment for an FHA mortgage is 3.5% for those with a score of 580 or greater; those with scores between 500 and 579 must make a minimum payment of 10%. Although this is a low down payment and makes homes more affordable, it also means you would pay a private mortgage insurance premium (MIP).
We understand that even 3.5% can feel like a challenge depending on your personal finances, but Pride Lending is here to assist. We’ll connect you with local, state, and nationwide down payment assistance programs that can provide you with grants or second liens.
Numerous organizations in Texas offer assistance for those who can’t afford their upfront costs. For example, you may choose DPA programs from the Texas State Affordable Housing Corporation (TSAHC) or the Texas Homebuyer Program from the Texas Department of Housing and Community Affairs.
Debt-To-Income Ratio (DTI)
DTI compares your monthly debt payments to your gross monthly income. You divide your debt total by the gross income each month and then multiply by 100 to get a percentage. The typical lender will require a maximum DTI of 43%. Lenders can make an exception to a maximum DTI of 57% if the borrower has a good credit profile and provides a larger down payment.
Property Standards
Since the government is backing this mortgage, approval for the property type is needed before the loan is given. An appraisal will ensure the property is safe to occupy and up to standards for liveable conditions.
Additionally, this home must become your primary residence to qualify. However, it is possible to purchase a property with up to 4 units and rent up to 3 units, as long as one is used as your permanent residence.
Mortgage Insurance Premiums (MIP)
Everyone, no matter how much they put down, needs to pay the upfront mortgage insurance premium, which is 1.75% of the loan amount. You’ll also have to pay ongoing annual mortgage insurance premiums, though this may not be for the entire length of the loan.
If you make a 10% down payment or more, the MIP will be removed after 11 years, but if you make less than this, you’ll have MIP for the entirety of the loan. It’s also possible to refinance into a conventional loan once you have 20% equity, which would remove mortgage insurance.
FHA Loan Limits Colorado
There is a maximum loan amount that you can borrow for an FHA loan. These are known as Colorado FHA loan limits, and they vary depending on the county you live in. The limit is a percentage of the loan limit set by the Federal Housing Finance Agency for conventional loans, and they differ by the amount of units in the property. For example, a single-family home has a different loan limit than a multi-family home.
Here are a few FHA loan limits based on several Colorado counties.
Adams County – $816,500
Chaffee County – $632,500
Denver County – $816,500
El Paso County – $517,500
Fremont County – $498,257
The FHA Loan Process
When you work with Pride Lending to get an FHA loan in Colorado, you can take advantage of our streamlined process to ensure a smooth homebuying experience. First-time home buyers and experienced buyers can apply for FHA loans with our guidance. Here are the steps you will take for FHA home loans.
See if you meet the requirements
Evaluate if you have a credit score of 580 or greater, a DTI of 43% or lower, and that you meet the down payment requirement of 3.5%. You may still qualify if you have a score as low as 500 or a DTI of 57%, but this may limit your choices.
Contact Pride Lending
When you reach out to us, we’ll begin your loan consultation by reviewing your options with you. FHA-approved lenders are qualified to give out these mortgages, and finding the right loan partner is the key to a positive homebuying experience.
Apply and get pre-approved
Pre-approval will prepare you for a smoother buying experience and help you understand what you can afford. You will need many documents for your application, including tax returns, paychecks, and bank statements.
Shop for the perfect home
Once you’ve been preapproved, we’ll discuss your budget with you and send your preapproval letter to your realtor. You can then begin shopping for the right property in your area.
Submit an offer
You and your realtor will decide on a competitive bid and submit the letter to the seller.
Complete the application
The application is called the Uniform Residential Loan Application and will include many of the same details you needed for preapproval; however, it will also include property details, which the lender will use to determine whether the property meets their standards.
Offer acceptance
The seller will decide if they find your offer acceptable. If they do, then you’ll sign a purchase contract that tentatively agrees to buying the home.
Inspection
While not strictly necessary for the program, the lender will likely require you to have the property inspected, ensuring that there are no significant issues.
Conditions
If you’re happy with the inspection results, then our team at Pride Lending will walk you through the sales contract and make sure everything is correct.
Underwriting
We will submit all the details that you have provided to the lender, whose underwriting team will now take over. They will carefully investigate each facet of the loan and ensure that there are no issues with you or the home.
Appraisal
An approved appraiser will evaluate the property to determine if it is a fair value, is safe to live in, and meets the property requirements for FHA home loans.
Loan approval
Once the appraisal is complete and the details of the loan have been reviewed, the lender will proceed with the final approval of your loan so that you can close on the transaction. We will schedule the closing date with you and the title company will send the information regarding how to pay the upfront expenses.
Close on the home
All the documents will be signed, the title will be transferred to you, the closing costs will be paid, and you will become the new owner of that house with the help of an FHA home loan.
Why Choose Pride Lending for Your Texas FHA Loan?
When you need the right team on your side to navigate the Texas FHA program, a loan officer from Pride Lending is ready to help. We serve all our clients with the same care, offering excellent customer service and a streamlined application process to make homeownership affordable and accessible.
Our team is composed of allies and members of minority communities, including LGBTQ+ and BIPOC individuals. We’re here to help everyone, no matter their identity, and serve as an advocate for those who may feel underserved by the mortgage industry.
First-time homebuyers and repeat buyers alike can work with Pride Lending whether they want to buy a single-family home or learn about an FHA reverse mortgage. Call us today at 725-231-0192 to learn more about Texas FHA loans.