6 Things to Check Before a Colorado Home Loan

Six things decide whether a Colorado home loan closes on time and at the payment a buyer expects: credit score, debt-to-income ratio, down payment, loan type, rate structure and closing costs. Check these before writing an offer and the loan becomes the easiest part of buying a Front Range home.

1. Credit score

Colorado lenders set the minimum credit score by loan type: 620 for most conventional loans, 580 for a 3.5% down FHA loan (500 with 10% down), and no agency-set minimum for a VA loan, though most lenders apply their own floor around 580 to 620. The Colorado Housing and Finance Authority's down payment assistance programs set their own floor too, commonly near 620, on top of whatever the underlying loan type requires.

2. Debt-to-income ratio

Debt-to-income compares monthly debt payments, including the new mortgage, to gross monthly income. Conventional loans commonly cap this near 45% to 50% with strong compensating factors, FHA loans allow a similar range, and VA loans weigh residual income more than a hard DTI ceiling. Pay down a credit card balance or an auto loan before applying if the ratio runs close to the lender's limit.

3. Down payment, and Colorado's assistance programs

A conventional loan starts at 3% down for a first-time buyer, FHA starts at 3.5%, VA and USDA go to zero down for eligible buyers, and CHFA layers a second loan or grant on top of any of these to cover part of the down payment or closing costs. Weld, Larimer and parts of unincorporated Douglas and Elbert counties qualify for USDA's zero-down rural program; Denver, Aurora and the inner Front Range suburbs do not.

Colorado home loan types compared

4. Which loan type fits your situation

Veterans and active-duty service members use a VA loan first; it is the lowest-cost option with no down payment and no monthly mortgage insurance. Buyers at eligible rural Weld or Larimer County addresses check USDA before anything else, since it also requires no down payment. Everyone else compares conventional against FHA based on credit score and down payment: conventional wins once the score clears 680 to 700, because the mortgage insurance costs less and drops off once the loan balance falls under 80% of the home's value.

5. Fixed rate or adjustable rate

A fixed rate holds the same payment for the full loan term, the right choice for a buyer planning to stay past 7 years. An adjustable-rate mortgage starts with a lower rate for an initial period, commonly 5, 7 or 10 years, then adjusts with the market; it fits a buyer who plans to sell or refinance before that adjustment period ends. Run both numbers with a lender before assuming the ARM's lower start rate saves money over the full time you plan to own the home.

6. Closing costs

Colorado closing costs on a home loan run 2% to 5% of the purchase price, covering the appraisal, title insurance, lender fees, recording fees and prepaid property tax and insurance reserves. Sellers in a Front Range buyer's market credit part of this back to the buyer; ask about that credit before waiving it. Read the full breakdown in the Colorado closing costs guide.

What documents a Colorado lender asks for

Two years of W-2s or tax returns, 30 days of pay stubs, two months of bank statements, photo ID and the purchase contract once an offer is accepted. Self-employed buyers add a year-to-date profit and loss statement and a CPA letter. Gather these before the search starts; a complete file moves pre-approval to full underwriting faster once an offer is accepted.

Does a new credit inquiry hurt a Colorado buyer mid-loan

Yes. A new credit card, an auto loan, or even a "0% financing" offer on furniture between pre-approval and closing changes the debt-to-income ratio and can change the loan amount a lender approves. Hold off on any new financing until after the Colorado closing is recorded, no matter how good the promotional offer looks during the home search.

How Colorado's insurance market changes the monthly payment

Property insurance is part of the escrow payment on nearly every Colorado home loan, and hail and wildfire risk have pushed Front Range premiums up in recent years. Get a homeowners insurance quote on the specific address before finalizing the loan amount, not a citywide average, since premiums vary block to block based on roof age, construction type and wildfire zone.

What escrow is and how it changes the monthly payment

An escrow account collects one-twelfth of the annual property tax bill and the annual insurance premium with each monthly mortgage payment, so the lender can pay both bills in full when they come due. Colorado's biennial county reassessment and the state's rising insurance premiums both change the escrow portion of the payment over time, which is why a payment can shift even on a fixed-rate loan; most lenders review and adjust the escrow collection once a year.

Should a Colorado buyer use a local lender or a national one

A local Colorado lender or mortgage broker knows the county recording offices, the HOA and metro district disclosure requirements, and which appraisers cover a given neighborhood, all of which shorten the path to a clean closing. A national lender sometimes offers a lower advertised rate; compare the full loan estimate, not just the headline rate, since fees and timeline matter as much as the rate on a Front Range purchase with a firm closing date.

How long Colorado mortgage pre-approval takes

A complete application with documents ready produces a pre-approval letter in 1 to 3 business days; a file missing documents stretches that to a week or more while the lender requests what is missing. Start the process before touring homes so the pre-approval letter is already in hand the day an offer needs to go out.

Start the loan process before the home search

Kenna Credit Care reviews a buyer's credit and debt-to-income ratio before the search starts, so the loan type and price range are set before the first showing. Pair that with a Colorado mortgage pre-approval, and Front Range sellers take the offer more seriously the day it lands. Mike Oswald at Rate runs Colorado buyers through all six of these factors on one call.

Many of our buyers use Mike Oswald at Rate and trust him. You are free to use any lender you choose, and the Kenna Real Estate Group receives nothing for the introduction. Mike Oswald, NMLS 261003 · Rate, Inc., NMLS 2611 · Equal Housing Lender.

Where to go next

• The Colorado home buyer's guide
• First-time home buyer guide for Colorado
• Government-backed home buying guide
• Closing costs for Colorado home buyers
• Understanding Colorado FHA loans
• Mortgage options for first-time homebuyers in Colorado

Talk to the Kenna Real Estate Group

The Kenna Real Estate Group walks Front Range buyers through every one of these six factors and connects them to a lender who explains the numbers in plain terms. Call or text 303-955-4220. A live person answers. Not a robot, not a phone tree. Or search every home for sale in Colorado once your loan type is set.