Getting a USDA Home Loan in Colorado: A Complete Guide

The USDA home loan program provides an excellent opportunity for low- and moderate-income buyers to purchase a home in rural areas of Colorado with little or no money down. These government-backed mortgages offer 100% financing and flexible credit requirements.

If you’re looking to buy a home in a rural area of Colorado but don’t have a lot of money saved up for a down payment, a USDA loan may be a great option for you. In this complete guide, we’ll cover everything you need to know about qualifying for and getting a USDA mortgage in Colorado

What is a USDA Home Loan?

USDA home loans are government-backed mortgages aimed at helping low- and moderate-income homebuyers purchase homes in rural and suburban areas. These loans are available through approved lenders and guaranteed by the United States Department of Agriculture (USDA).

Some key features of USDA loans include:

• 100% financing – No down payment is required,

• Low interest rates – USDA loans offer competitive interest rates

• Flexible credit requirements – Credit scores as low as 640 may qualify.

• Low mortgage insurance – Upfront and monthly mortgage insurance costs are low.

• No income limits – Income limits only determine eligibility for payment assistance programs.

USDA loans help borrowers overcome two major barriers to homeownership – coming up with a down payment and having a high credit score. They make owning a home achievable for many buyers who may not qualify for other loan programs.

USDA Loan Eligibility in Colorado

To qualify for a USDA home loan in Colorado, you must meet certain eligibility requirements related to your income, the home you wish to purchase, and where you choose to live.

Income Eligibility

There are no strict income limits to qualify for a USDA loan in Colorado. However, your income will determine if you are eligible for any down payment or closing cost assistance programs offered by USDA.

Here are the income categories for USDA loans in Colorado:

• Low income – Under 80% of the area median income
• Moderate income – 80%-115% of the area median income

You can check if your income falls in the low- or moderate-income ranges by looking at USDA income limits for your county in Colorado.

Lower-income borrowers may be eligible for a subsidized USDA loan with an interest rate as low as 1% and payment assistance to reduce monthly mortgage payments.

Home Eligibility

The home you wish to purchase with a USDA loan must meet these criteria:

• Location – The home must be located in an eligible rural area of Colorado. You can check eligibility by entering an address here.

• Purchase price – The purchase price of the home must be within USDA loan limits for your county. These range from $123,000 to $349,600 in Colorado.

• Home type – The property must be a single-family home, condo, or townhouse. Duplexes and manufactured homes may also qualify.

In addition, the home must be in good condition and pass a USDA inspection. Cosmetic repairs may be needed to meet program guidelines.

Location Requirements

To qualify for a USDA loan, the home must be located in a rural area of Colorado. According to USDA guidelines, rural areas include:

• Open country
• Communities with populations under 35,000
• Towns between 10,000 and 35,000 people that are not part of urban areas

Specifically excluded are homes in Denver, Colorado Springs, Aurora, and other larger Colorado cities. Use the USDA eligibility map tool to check if a specific location meets rural area guidelines.

How to Apply for a USDA Home Loan in Colorado

Now that you know the eligibility criteria, here are the steps to take to apply for a USDA mortgage in Colorado:

1. Find a USDA approved lender – Connect with a Colorado lender approved to offer USDA home loans.

2. Get prequalified – Work with your lender to get prequalified. This involves submitting documents to verify your income, assets, debts, and credit history.

3. Choose a home – Once prequalified, you can start shopping for homes within your approved loan amount and in eligible areas.

4. Make an offer – When you find the perfect home, make an offer contingent on financing and appraisal.

5. Complete loan application – Your lender will guide you through the full mortgage application process. Be ready to supply tax returns, bank statements, and other documents.

6. Home appraisal – An appraiser will ensure the purchase price is in line with the home’s value.

7. USDA underwriting – Your lender will submit your loan to USDA for approval. Turn times are typically between 14-30 days.

8. Close on your home – Once approved, you’ll complete the final loan documents, finalize the purchase, and get the keys to your new home!

It’s a good idea to get prequalified before starting your home search. This will allow you to know your price range and make stronger offers when you find the perfect home.

The USDA underwriting process is the most time-consuming step, so give yourself several weeks between making an offer and your ideal closing date.

Advantages of USDA Loans in Colorado

Some of the biggest advantages of USDA home loans in Colorado include:

• No down payment required – The 100% financing allows buyers will little savings to purchase a home.

• Below market interest rates – USDA loans often have lower interest rates than conventional mortgages, saving you money.

• Low monthly mortgage insurance – Upfront mortgage insurance is 1% of the loan amount and monthly premiums are low.

• Flexible credit guidelines – Minimum credit scores between 640-660 are often acceptable, depending on your overall application.

• No strict income caps – You just need to fall within low- or moderate-income ranges for your area.

• Expanded home options – USDA loans allow buyers to purchase single family homes, townhouses, condos, manufactured, modular, and even some duplex homes.

• Payment assistance – Qualified low-income buyers can get subsidized loans at 1% interest and payment assistance to reduce monthly mortgage costs.

For buyers who don’t have a lot of cash saved up or have less-than-perfect credit, a USDA loan can make homeownership attainable when other mortgage programs are out of reach.

Mistakes to Avoid with USDA Loans

When applying for a USDA home loan, be sure to avoid these common mistakes:

• Not checking location eligibility – Be sure to use the USDA site to verify the property is in an eligible rural area before getting too far in the process.

• Providing inaccurate income – You must disclose all sources of income on your application. Undisclosed income could lead to a loan denial.

• Making a large purchase – Avoid large purchases like a car or boat before closing, as this may impact your debt-to-income ratio.

• Changing jobs – Job changes shortly before closing could delay or derail your approval. Stick with your current employer during the process.

• Not consulting your lender – Check with your lender before making any major financial decisions while your USDA loan is being processed.

With a properly documented application and some prudent steps along the way, you can avoid issues and have a smooth experience getting a USDA home loan in Colorado.

Alternatives to USDA Loans in Colorado

While USDA loans are a great option for eligible buyers, they aren’t the only choice. Here are a few alternatives to consider:

• FHA loans – May offer lower down payments for buyers with credit scores as low as 500.

• VA loans – Require zero down payment for qualified veterans and service members.

• Conventional 97 – Allow 3% down payment and more flexible credit than standard conventional loans.

• Down payment assistance – First-time homebuyer programs like CHFA SmartStep may help provide down payment funds.

• Low down payment loans – Several banks offer portfolio loan programs with down payments between