Planning to buy your first home can be an exhilarating time! While there are many exciting decisions to make, there are also some pretty complicated parts of the home-buying process. If you feel confused, you’re not alone — many first-time homebuyers like you have questions about the financing process.
To help, we’ve created this complete guide for FHA loans in Colorado. We’ll walk you through FHA credit score requirements, explain state funding and assistance programs and recommend top mortgage lenders in the Centennial State.
The Best FHA Mortgage Lenders in Colorado:
- Best Overall for FHA in Colorado: Rocket Mortgage®
- Best for a Variety of Options: New American Funding
- Best for Low Credit Scores: CitiBank Mortgage
- Best for Online and Mobile Applications: guaranteed Rate
- Best for In-Person Service: Bank of America
What is an FHA Loan?
You’ve probably heard the term “FHA loan” throughout your financing research. FHA loans are government-backed loans that are financed through the Federal Housing Administration. These home loans are designed with first time homebuyers in mind, which is why they’re often called first time homebuyer loans.
FHA loans have a variety of benefits you’ll want to explore. They include:
- Low credit score requirements (as low as 500 to 580)
- Low down payment minimums (as low as 3.5% of your home’s value)
- Below-market interest rates
FHA loans make it easier for low- to mid-income home buyers afford to buy a home in Colorado. Although most FHA home loans are purchase loans used to buy your first home, they also offer refinance options to help existing homeowners refinance their current home loans.
FHA loans are funded by the federal government but are serviced by conventional lenders. Conventional lenders refer to online and brick-and-mortar lenders, like banks and credit unions. Most conventional lenders in Colorado offer FHA loans.
Requirements for an FHA Loan
FHA loans can be great for most new home buyers in Colorado, but you’ll want to make sure you’re eligible before applying. The 2019 FHA home loan requirements include:
- A minimum credit score of 580 (with a 3.5% down payment)
- A minimum credit score of 500 (with a 10% down payment)
- Proof of employment and a steady job history
- Agreement that the home you’re financing will be your primary residence
In addition, FHA loans require a debt-to-income (DTI) ratio of less than 43%. Your DTI looks at how much money you pay in expenses each month versus how much pretax income you bring in monthly. To calculate your DTI, you divide your monthly bills by your monthly pretax salary.
Let’s say you pay $1,500 in expenses each month and make $5,000 pretax each month. Your DTI formula would be $1,500 / $5,000, and your DTI would be 0.3 or 30%, which would qualify you for an FHA loan.
These general FHA loan requirements are established by the government. Every lender has the option to add its own requirements to its FHA loans, so you could see differing rates when comparing mortgage lenders.
Lender Specifics for FHA Loans
Each lender has its eligibility requirements that you’ll need to meet to qualify for FHA financing. Credit score minimums for FHA loans, for example, can vary greatly across lenders.
To help you get a better idea of what these minimums look like, we’ve compiled credit score data, loan servicing information and down payment requirements from top FHA lenders in the Centennial State.
| Lender | Minimum Credit Score | Loan Servicing | Minimum Down Payment |
|---|---|---|---|
| Rocket Mortgage® | 580 | In house | 3.5% |
| Chase | 580 | In house | 3.5% |
| PNC Financial Services | 640 | In house | 3.5% |
| Guaranteed Rate | 580 | In house | 3.5% |
Interest Rates for FHA
The interest rate on your FHA home loan is referred to as your mortgage rate. Your mortgage rate is determined based on your credit score, down payment amount, home location and loan term.
For FHA loans, there are 3 standard loan terms you should be aware of.
30-Year Fixed-Rate Term
A 30-year fixed-rate mortgage is an FHA home loan that has a set rate and monthly payment that you’ll make for 30 years. Expect to have a higher interest rate than shorter loan terms and more interest overall with a 30-year fixed-rate mortgage. On the upside, you’ll make smaller monthly payments, making this an affordable option for many low- to mid-income buyers.
15-Year Fixed-Rate Term
A 15-year fixed-rate mortgage is an FHA home loan that has a set rate and monthly payment that you make for 15 years. These fixed mortgages tend to have the lowest interest rates, saving you money on interest over time. Your monthly payments, however, will be higher than with a 30-year term.
5/1 ARM Term
An ARM refers to an adjustable-rate mortgage, which is an FHA home loan that does not have a fixed rate. A 5/1 ARM has a set rate for the first 5 years (the introductory period), where you’ll make fixed payments. After this period your rate and payment amount will fluctuate.
A 5/1 ARM is often a good idea if you’re a low-income buyer expecting to make more money 5 years down the road.
Do You Need Mortgage Insurance?
If you pay less than 20% on your home’s down payment, you’re typically required to purchase some form of mortgage insurance. FHA home loans require you to purchase an FHA mortgage insurance premium, also known as MIP. MIP is used to protect your lender if you’re unable to continue making mortgage payments.
If you’re required to purchase MIP, you should prepare to pay 1.75% of your home loan’s value at the time of closing. In some cases, this up-front expense can be rolled into your loan amount. After that, you’ll pay between 0.45% and 1.05% of your loan amount to fund MIP each year.
Although some mortgage insurance policies can be cancelled once you’ve successfully paid off 20% of your home’s value, MIP often cannot be cancelled. You should expect to pay for MIP throughout the lifetime of your home loan.
How to Apply for an FHA Loan in Colorado
Now that you understand the FHA mortgage process and options for Colorado, you can prepare to search for the right lender for your FHA home loan.
Before applying, you’ll want to have the below information on hand:
- Your Social Security number
- Pay stubs from the last 2 months
- Tax information from the last 2 years
- Profit and loss statements if you are self-employed
- Financial statements for checking, savings, investing and retirement accounts
- Current amount of debt, including credit cards and loans
Before applying for an FHA loan, you’ll also want to explore the financial assistance programs Colorado offers for first time homebuyers. Most of these loans and grants can be paired with a qualifying FHA mortgage, but you’ll want to double-check with your lender.
Colorado’s down payment assistance programs through the Colorado Housing Finance Authority (CHFA) include:
- Down Payment Assistance Grant: This grant offers first time home buyers up to 3% on their home loan amount in down payment and closing cost assistance. You’ll need to meet the program’s income requirements to qualify. This grant does not have to be repaid. You can learn more on the CHFA website.
- Second Mortgage Loan: This CHFA program allows first time buyers to apply for a second mortgage that would cover their closing costs or down payment. This loan allows you to borrow up to 4% of the amount being financed on your FHA loan. This loan does not need to be repaid until you sell your home, refinance or pay off your mortgage. You can learn more on the CHFA website.
Keep these assistance programs in mind when calculating how much of a down payment you can afford.
Best Lenders for FHA Loans in Colorado
Now that you know more about the FHA home loan and application process, it’s time to look for your mortgage lender. To help, we’ve compiled a list of the top 5 FHA lenders in Colorado and grouped them by incentive.
1. Best Overall: Rocket Mortgage®
Owned by the popular Quicken Loans®, Rocket Mortgage® has streamlined the mortgage application process. You can quickly apply for an FHA loan completely online and upload your verification documents in minutes.
You’ll find out if you’re approved right away, so you won’t need to wait for days to hear from a loan officer. If you need help, Rocket Mortgage® has around-the-clock customer service assistance.
FHA credit score requirement: 580
2. Best for a Variety of Options: New American Funding
An FHA loan is ideal for those who have less than perfect credit or no credit history. You'll have the option of 30 year fixed or 15 year fixed loans with a low down payment option. To qualify for an FHA loan though New American Funding you'll need a credit score of 580 or higher, 3.5% - 10% down depending on credit score and proof of steady income. Along with that, mortgage insurance is required, there are higher home inspection standards and the loan will have to be used for a primary, residential property.
New American Funding has a A+ rating with the BBB and over 236k reviews. There's something to be said about reputation and borrower satisfaction when it comes to New American Funding. Apply today for an FHA loan.
3. Best for Low Credit Scores: CitiBank Mortgage
Even though FHA loans have set credit score minimums, CitiBank Mortgage can help you if your credit score falls just shy of FHA requirements.
CitiBank Mortgage allows alternative credit history (on-time utility and rent payments) to count toward your creditworthiness, increasing your chance of approval. You can apply online or in-person.
FHA credit score requirement: N/A
4. Best for Online and Mobile Applications: guaranteed Rate
If you’re looking for an online lender with a great customer satisfaction rating, look into guaranteed Rate.
With simple online and mobile application processes, guaranteed Rate makes it easy to apply and upload all verification documents. You can reach out to its customer service team for help or navigate the process on your own.
FHA credit score requirement: 580
5. Best for In-Person Service: Bank of America
If you’d prefer to have a loan professional walk you through your FHA loan options and mortgage applications, visit your local Bank of America.
While it offers a fully online application, you can also complete the FHA application in-branch. Bank of America also offers down payment and closing cost assistance, as well as considers alternative credit. Existing Bank of America customers may be eligible for mortgage rate discounts.
FHA credit score requirement: 600
Get the Right FHA Loan for Your Colorado Home
Choosing the right FHA loan for your new Colorado home is an important decision that you shouldn’t rush. Take your time finding out if you meet the FHA requirements before shopping for the right mortgage lender.
While FHA home loans have standard features, each lender offers its own incentives. Figure out which loan benefits are most important to you, then look for a lender who can turn your financial dreams into a reality.
Frequently Asked Questions
Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!
Q: How much interest will I pay?
Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.
Get Ready for Take Off
Rocket Mortgage® is an online mortgage experience developed by the firm formerly known as Quicken Loans®, America’s largest mortgage lender. Rocket Mortgage® makes it easy to get a mortgage — you just tell the company about yourself, your home, your finances and Rocket Mortgage® gives you real interest rates and numbers. You can use Rocket Mortgage® to get approved, ask questions about your mortgage, manage your payments and more.
You can work at your own pace and someone is always there to answer your questions — 24 hours a day, 7 days a week. Want a fast, convenient way to get a mortgage? Give Rocket Mortgage® a try.