You have a lot of options when choosing a mortgage loan to buy a house in Denver. One of your primary choices is whether you want to use a conventional home loan, or one that is insured by the government. FHA loans, for example, are a popular form of government-backed mortgage financing.
Today, we will look at the reasons why you might use an FHA loan when buying a house in Denver, and what kind of requirements you might encounter along the way.
Buying a Home in Denver with an FHA Loan
Before getting to the specific requirements for this program, it’s important to understand the fundamentals of how it works.
FHA home loans are different from conventional or “regular” mortgage products because they are insured by the federal government. The Federal Housing Administration (part of HUD) gives lenders who participate in this program some degree of insurance protection against borrower default.
So, when you use an FHA loan to buy a home in Denver, you’re not actually borrowing money from the government. You’re getting the money from a mortgage lender the private sector – as you would with most other types of mortgage financing. The difference, though, is that the loan is insured through the FHA.
Know Your Limits: Maximum Mortgage Size in Denver
When using an FHA-insured mortgage loan to buy a house in Denver, you may be limited to borrowing a certain amount. The Department of Housing and Urban Development establishes loan limits for the FHA mortgage program, and they are partly based on the limits set by the Federal Housing Finance Agency for conventional mortgage loans.
Because they are derived from median home values, FHA loan limits tend to vary from one county to the next. And they’re usually the same across an entire metro area.
In the Denver-Aurora-Lakewood, Colorado metropolitan area, the FHA loan limit for a single-family home purchase is $493,350. That’s the current limit as of 2017.
These limits can change over time, due to increases in home prices. For example, in 2016 the FHA loan limit for Denver was $458,850. So it went up quite a bit from last year to 2017.
When this article was published, in September 2017, the median sale price for homes in the Denver metro area was around $410,000. That’s well below the single-family loan limit mentioned above.
Qualification Standards at a Glance
If you want to use an FHA loan to buy a house in Denver, you need a down payment of at least 3.5%. That is the minimum required investment for an FHA-insured mortgage in Denver, Colorado.
Borrowers also need a credit score of at least 500 to be eligible for the program, and a score of 580 or higher to qualify for that 3.5% down payment mentioned above.
One of the benefits of using an FHA mortgage when buying a home in Denver is that you can receive financial help from family members, close friends, or other approved sources. These third-party donors can contribute money toward the home buyer’s down payment and other expenses. This is referred to as a down payment gift.
FHA Loans Can Be Easier to Obtain
Because of the government insurance mentioned above, borrowers often find it easier to qualify for an FHA loan when compared to a conventional mortgage product.
For example, home buyers with credit scores that are slightly below the cutoff for a conventional loan might still qualify for FHA mortgage financing. There are a lot of exceptions to the rules when it comes to the Federal Housing Administration’s loan program, such as “compensating factors” for borrowers with a high level of debt.
The point is, FHA loans are often used by home buyers in Denver who have trouble qualifying for conventional mortgage financing. They are also particularly popular among first-time buyers, because of the relatively low down payment and the ability to use gift money from third parties.
The House Must Meet HUD’s Property Requirements
To buy a home in Denver with an FHA loan, the property must meet the minimum requirements set forth by HUD. The home appraiser will check for this when he makes his visit.
Most of these property requirements have to do with the health and safety of the occupant. For example, bedrooms must have some kind of egress to the outside (like a window). And if a home was built prior to 1978 (when lead-based paint was common), it cannot have any peeling paint or other “defective paint surfaces.”
These are just two examples of the FHA property requirements for Denver, Colorado. If you want to learn more about them, you can refer to HUD Handbook 4000.1, also known as the Single-Family Housing Policy Handbook.