7 Crucial Advantages of Opting for an FHA Loan in Colorado

Colorado's vibrant culture, stunning landscapes, and booming economy make it a desirable place to live. Still, homeownership can be difficult since, in this state, 1 in 3 homes are sold over the asking price. An FHA loan with Federal Housing Administration backing offers hope to many prospective homeowners, especially first-time buyers and those with financial constraints.

US Mortgages -- headquartered in the greater Colorado area and specializing in government-backed loans to help homebuyers of all financial means – is here to offer expert guidance to those who have set their sights on an FHA loan in Colorado.

“We all know that housing costs are continuing to rise,” Dominique Jackson, HUD Rocky Mountain’s regional administrator said at a University of Denver back-to-campus event last summer. “We’re here to help students and faculty see that homeownership is more accessible than they might imagine. People think they have to have boatloads of money, that they have to put down a ton for down payments, that they have to have absolutely perfect credit, and that they can’t qualify for a loan, and that’s just not true. There are so many resources to help you.”

Basics of a Colorado FHA loan

As we outlined before, FHA loans are government-backed mortgage loans insured by the Federal Housing Administration. This insurance protects lenders against losses if borrowers default on their loans, allowing them to offer more lenient qualification criteria and competitive interest rates.

FHA loans are particularly attractive to first-time homebuyers and those with less-than-perfect credit.

“FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) - which is part of HUD - insures the loan, so your lender can offer you a better deal,” explains the U.S. Department of Housing and Urban Development (HUD).

HUD says that “better deal” includes:

Low down payments.
Low closing costs.
Easy credit qualifying.

It should be noted that HUD data found the FHA single-family home market in Colorado is declining, with fewer homes being approved and a higher median sales price.

In 2022, FHA approved 24,014 homes in Colorado and 14,073 in the Denver metro, a decrease of 33 percent and 36 percent, respectively, from 2021.

What is the FHA loan limit in Colorado?

The Federal Housing Finance Agency adjusts its loan limits annually using a National Housing Act formula. The maximum amount is always a percentage of the FHA's national conforming loan limit for conventional loans or mortgages that follow Fannie Mae and Freddie Mac's guidelines.

In Colorado, FHA loan limits vary by county and are subject to change based on housing market trends. For 2024, they range from $498,257 to $1,149,825 for a single-family home.

Colorado FHA loan limits

Fannie Mae loan limit: This aligns with conventional loan limits, serving as a benchmark for non-FHA loans in Colorado. For 2024, the Fannie Mae loan limit in Colorado is $766,550.
Jumbo Loan threshold: In Colorado's more expensive counties, like Eagle, Garfield, Pitkin & Summit, loans exceeding the conforming limits are considered jumbo loans, demanding higher credit scores and down payments. The ceiling limit for jumbo loans in 2024 is $1,149,825.

Colorado FHA loan requirements

To qualify for an FHA loan, you typically need:

A credit score of at least 580 for a 3.5 percent down payment or 500-579 for a 10 percent down payment,
A debt-to-income ratio below 43 percent.
Proof of steady employment and income.
The property must be your primary residence and meet FHA appraisal standards.

“FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage,” says the FHA.

7 Reasons an FHA Loan in Colorado Could be Right for You

Let's look at the top 7 advantages of FHA loans in Colorado and why they might be the key to unlocking your dream home:

Lower Down Payment Requirements: One of the most significant advantages of FHA loans is the low down payment requirement. With a credit score of 580 or higher, you can put down as little as 3.5 percent of the purchase price. This lower upfront cost makes homeownership more accessible for first-time buyers in Colorado's competitive housing market.

“Denver was ranked as the hottest housing market in the nation by U.S. News and World Report,” FOX31 reported in February 2024. “U.S. News and World pointed to several potential factors for why Denver continues to be such a hot housing market. For one, U.S. News said the area enjoys a relatively low unemployment rate, as well as few mortgage delinquencies and a low rental vacancy rate.”
Relaxed Credit Score Standards: FHA loans have more lenient credit score requirements compared to conventional mortgages. Even if you have a credit score as low as 500, you may still qualify for an FHA loan with a 10 percent down payment. This flexibility is particularly beneficial for those with limited or less-than-perfect credit histories.

Keep in mind, says the FHA, that there are many ways a lender can assess your credit history, and it includes more than just looking at your credit card activity. Any type of payment such as utility bills, rent, student loans, etc. should all reflect a general pattern of reliability.
Competitive Interest Rates: Despite the more relaxed qualification criteria, FHA loans often come with competitive interest rates. The government backing allows lenders to offer rates comparable to conventional mortgages, making your monthly payments more affordable.

“FHA loans offer low-interest rates to help homeowners afford their monthly housing payments. This is a great benefit compared to the negative features of subprime mortgages,” explains the FHA.
Allows for Higher Debt-to-Income Ratios: FHA loans generally allow for higher debt-to-income ratios compared to conventional mortgages. This means that even if you have a higher percentage of your income going towards debts, you may still qualify for an FHA loan, increasing your chances of achieving homeownership in Colorado. Keep in mind that for conventional loans, typically lenders like to see a debt-to-income ratio 36 percent or lower, while FHA loans typically require 43 percent or lower.
Short time to qualify: FHA loans are designed to overcome financial problems like bankruptcy or foreclosure, offering shorter waiting periods than conventional loans. A deeper understanding of personal financial recovery allows individuals and families to re-enter the housing market sooner.
Assumable loan: When selling a home, the buyer can take over the seller's FHA loan at the same interest rate. In a rising interest rate environment, this can boost property value. Given the rise in interest rates over the past year, a loan that locks in a lower rate can be appealing. This feature can speed up the selling process, save the buyer money, and make the property stand out.
Colorado-Specific Benefits: In Colorado, where home prices have been steadily rising since the Pandemic (the Denver-area median sales price was up roughly 32 percent from December 2019 to December 2023), FHA loans can be a game-changer.

The lower down payment requirement and relaxed credit standards make it easier for first-time buyers to enter the market. Additionally, FHA loans have higher lending limits in high-cost areas like Colorado, allowing you to borrow more to keep up with the local housing prices.

For example, according to HUD as of Jan. 1, 2024, the mortgage limit for Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park counties was:

o One-Family: $816,500.

o Two-Family (Duplex): $1,045,250.

o Three-Family (Triplex): $1,263,500.

o Four-Family (Fourplex): 1,570,200.

FHA Loans: Pathway to Homeownership in Colorado

FHA loans offer a pathway to homeownership for many first-time buyers in Colorado who may have thought it was out of reach.

With lower down payment requirements, relaxed credit standards, competitive interest rates, and Colorado-specific benefits, FHA loans are a powerful tool for achieving your homeownership goals.

At US Mortgages, our specialized expertise in FHA loans, localized knowledge of the Colorado market, and client-centric approach ensure that we can guide you through the FHA loan process and help open the door to your dream home.