USDA Loan Requirements in Colorado: A Complete Guide

The USDA loan program offers many benefits for homebuyers in rural areas and small towns across Colorado. Also known as the Section 502 program, USDA loans require no down payment and have flexible credit requirements. This makes them one of the most affordable loan options for low- and moderate-income buyers.

In this comprehensive guide, we’ll explain everything you need to know about USDA loan requirements in Colorado. Whether you’re interested in the direct USDA loan or the USDA-guaranteed loan we’ll cover eligibility home and location requirements, and the application process.

Overview of USDA Loan Programs

The USDA offers two main mortgage loan programs:

• USDA Direct Loan – Also called Section 502 Direct, this program offers low-interest loans directly from the USDA Borrowers work with a USDA-approved lender

• USDA Guaranteed Loan – With this program, borrowers work with private lenders and the USDA guarantees the loan.

Both loans require meeting income and home location eligibility. The key differences are:

• Interest rates – Direct loans offer below market interest rates while guaranteed loans have market rates.

• Downpayments – No downpayment is required for either loan. However, direct loans are more flexible if you have limited savings.

• Credit scores – Guaranteed loans require a minimum 620 FICO score. Direct loans are more flexible.

Let’s look at the specific requirements for each program in more detail.

USDA Direct Loan Requirements

The USDA Direct Loan program helps low-income rural buyers purchase homes with subsidized interest rates and flexible credit requirements. Here are the eligibility criteria:

Income Limits

Your income must be below the limit for your area. Limits range from $38,900 for a 1-person household to $69,050 for a 7+ person household in most Colorado counties. You can check income limits here.

Credit Requirements

Direct loans are available for borrowers with credit scores as low as 580. No minimum score is required, but you must demonstrate a willingness and ability to repay debt.

Home Location

The home must be located in a USDA-designated rural area. Over 70% of Colorado land is eligible. You can check specific addresses using the USDA Property Eligibility tool.

First-Time Homebuyer

You cannot own any other residential property at the time you close on the USDA loan.

Home Types

The USDA allows financing for single-family homes, townhomes, and condos. Manufactured homes are also eligible if built after June 1976.

Occupancy and Usage

You must make the home your primary residence and live there full-time. Income producing activity is not allowed, like renting out a room.

Home Condition

The property must be modest, without luxury amenities, and in decent condition. A USDA appraiser inspects the property.

Cash Reserve Requirements

No specific cash reserves are required. However, the USDA may ask for reserves if you have significant assets.

Debt-to-Income Ratio

Your total monthly debt payments, including the new mortgage, cannot exceed 41% of your gross monthly income.

Repayment of Subsidy

When you sell the home or move out, you may have to repay all or part of any subsidized interest you received.

USDA Guaranteed Loan Requirements

USDA-guaranteed loans help moderate income buyers in rural areas qualify for 100% financing from private lenders. Here are the eligibility requirements:

Income Limits

Your income must be below 115% of the median income for your area. Limits range from $89,960 for a 1-person household to $159,900 for a 7+ person household in most Colorado counties. You can check income limits here.

Credit Requirements

A minimum credit score of 620 is required. Lenders may have higher standards.

Home Location

The home must be in an eligible rural area just like the direct loan. You can use the USDA tool to check.

First-Time Homebuyer

Previous home ownership doesn’t disqualify you from a guaranteed loan like it does with the direct loan.

Home Types

Single-family homes, townhomes, condos, and manufactured homes are eligible just like the direct loan.

Occupancy and Usage

Full-time primary residency is required. Income producing activity is not allowed.

Home Condition

Modest properties in decent condition are required, verified by a USDA appraisal.

Cash Reserve Requirements

No specific amount is required by the USDA. Your lender may require reserves.

Debt-to-Income Ratio

A maximum ratio of 29/41 applies (29% housing costs and 41% total debt).

How to Apply for USDA Loans in Colorado

Now that you know the eligibility guidelines, let’s look at the application process.

USDA Direct Loan

To apply for a direct USDA home loan in Colorado:

1. Contact your local USDA Rural Development office and request an application package.

2. Submit your completed application along with required documentation like pay stubs, tax returns, and credit report.

3. The USDA will review your eligibility and contact you for any needed information.

4. Once approved, you can move forward to find a home and make an offer contingent on USDA appraisal.

5. Work with the USDA lenders to complete the financing. Expect 2-3 months from completed application to closing.

USDA Guaranteed Loan

To apply for a USDA-guaranteed loan:

1. Contact USDA-approved lenders to compare options and select a lender.

2. Complete the lender’s loan application and submit required documents.

3. The lender will underwrite your loan and submit it to the USDA for approval.

4. Once approved, move forward with home search and offer.

5. Finalize loan details and close. Expect 45-60 days from completed application to closing.

No matter which loan you choose, the USDA has resources to help:

• USDA Homeownership Centers provide homebuyer education and counseling.

• USDA Certified Loan Application Packagers help assemble loan applications.

The USDA wants to help rural residents achieve homeownership. By understanding the requirements and using available resources, you can navigate the loan process with success. Reach out to a local USDA office in Colorado today to start your journey!