Everything You Need to Know About USDA Loans in Colorado

USDA loans are an attractive home financing option for many buyers in Colorado. These government-backed loans offer 100% financing and flexible credit requirements. However, there are specific eligibility rules and requirements borrowers must meet to qualify for a USDA loan in Colorado.

In this comprehensive guide we will cover everything you need to know about getting a USDA loan in Colorado, including

Overview of USDA Loans

The US Department of Agriculture (USDA) offers two types of home loans in Colorado

• USDA Direct Loans – These loans are funded directly by the USDA. They offer subsidized interest rates and payment assistance for very low and low-income borrowers.

• USDA Guaranteed Loans – With these loans, the USDA guarantees the mortgage for approved lenders. This reduces lender risk so they can provide 100% financing.

Key benefits of USDA loans include:

• 100% financing – no downpayment required
• Low interest rates
• Flexible credit requirements – no minimum credit score
• Low monthly mortgage insurance

The trade-off is USDA loans can only be used to purchase homes in specific rural and suburban areas. Property eligibility is key.

USDA Loan Property Eligibility in Colorado

To qualify for a USDA loan in Colorado, the home must be located:

• In a rural or suburban area as defined by USDA property eligibility maps
• Within an eligible rural census tract or service area
• Outside city limits with populations under 10,000 – 35,000 residents
• In towns with populations up to 35,000 if the housing market is rural in nature

The USDA has an eligibility site where you can enter any address to instantly check if it qualifies.

Homes outside suburban communities near Denver, Colorado Springs, Fort Collins and other larger cities can qualify. But homes in downtown or urban areas likely will not.

Borrower Eligibility Requirements

To qualify for a USDA home loan in Colorado, borrowers must meet certain eligibility criteria including:

• Income Limits – Your household income must be below the applicable low or very-low income limit set by the USDA. These vary by county and household size.

• Credit Requirements – USDA loans have flexible credit standards. There is no published minimum credit score, but most lenders require a 620 FICO or higher.

• Debt-to-Income Ratio – Your total monthly debt payments plus new mortgage payment must not exceed 29% of gross monthly income for direct loans or 41% for guaranteed loans.

• Homebuyer Education – First-time homebuyers are required to complete an approved homebuyer education course.

• Citizenship – At least one borrower must be a U.S. citizen, U.S. non-citizen national, or qualified alien.

How to Apply for a USDA Home Loan in Colorado

If you meet the eligibility criteria, here are the steps to take when applying for a USDA mortgage in Colorado:

1. Find a USDA Approved Lender – You can search the USDA Lender List to find Colorado lenders approved to offer USDA loans. Get pre-approved with a few to shop interest rates.

2. Check Property Eligibility – Before making an offer, verify the home’s address is in a USDA eligible area using the USDA eligibility maps or site.

3. Make an Offer – Once pre-approved, you can start home shopping and make offers on USDA eligible properties.

4. Complete Application – Work with your lender to complete the full mortgage application detailing your finances, income, debts, and assets.

5. Home Inspection – The property must pass a USDA Rural Development inspection evaluating minimum property standards and health/safety.

6. Close Loan – Final loan approval depends on underwriting. If approved, you’ll review final closing costs and documents and close on your new USDA mortgage.

Popular USDA Loan Uses in Colorado

In Colorado, buyers utilize USDA loans to:

• Purchase a primary residence – This is the most common use, ideal for first-time homebuyers.

• Renovate or repair a home – Loan funds can be used to improve or update a home at purchase.

• Build a new home – Borrowers can use a USDA loan to cover construction costs and purchase of land for building a new home.

• Refinance an existing USDA loan – Current USDA borrowers may refinance to lower their interest rate or payment.

• Finance manufactured/mobile homes – USDA loans can be used to purchase and place manufactured or modular homes on private land or in communities.

Pros and Cons of USDA Loans in Colorado

Here are some top advantages and disadvantages to weigh when considering a USDA mortgage in Colorado:

Pros

• Low interest rates and upfront costs
• No downpayment requirement
• More flexible credit standards
• Fixed-rate terms up to 38 years

Cons

• Limited to specific rural/suburban areas
• Monthly mortgage insurance required
• Homebuyer education course required
• Must meet income and credit requirements

Bottom line – USDA loans offer affordable financing but have some limitations compared to conventional loans. Make sure you qualify and the home meets property eligibility rules.