Before You Apply for a Colorado Mortgage: The 90-Day Plan

Before you apply for a Colorado mortgage, spend 90 days on four things: pull and repair your credit, hold your debt-to-income ratio under 43 percent, park your down payment in one account and leave it there, and take on no new debt of any kind. Do those four and the application is paperwork. Skip them and the underwriter sets your rate and your loan amount for you.

This guide is the 90-day plan the Kenna Real Estate Group gives Denver metro buyers before they meet a lender. It covers credit tiers, DTI, seasoning of funds, gift letters, employment, the three levels of pre-approval, Colorado's CHFA programs, and the taxes and insurance that change a Front Range payment. For the loan programs themselves, start with the Colorado home financing guide.

Days 90 to 60: credit

Lenders price a mortgage by credit tier, and the tiers step every 20 points. A borrower at 740 and a borrower at 660 buying the same Aurora townhome pay different rates on the same day, and the difference compounds for 30 years. The minimums by loan type:

Pull all three reports at annualcreditreport.com, the free site required by federal law. Dispute every error in writing. Pay revolving balances below 30 percent of each card's limit, and below 10 percent if you can reach it, because utilization moves a score inside one statement cycle. Do not close old cards; the age of the account is part of the score. Buyers below 620, or with a collection or a late payment inside the last 12 months, go through Kenna Credit Care mortgage readiness first, a 60-to-180-day plan that fixes the file before a lender ever sees it.

Days 90 to 1: no new debt

The lender pulls credit at application and refreshes it days before closing. Any new account or new balance between the two changes the debt-to-income ratio and reopens underwriting. From today until the keys are in your hand:

• No car loan or lease. A $600 car payment removes $100,000 of purchase price from a Front Range approval.
• No new credit cards, store cards or buy-now-pay-later plans, including the furniture for the new house.
• No co-signing for anyone; the whole payment counts against you.
• No job change without telling the lender first, and none at all from salary to commission or to self-employment.
• No large cash deposits you cannot document with a paper trail.

Debt-to-income ratio

DTI is your monthly debt payments, including the new mortgage payment with taxes, insurance and HOA dues, divided by gross monthly income. Automated underwriting on a conventional loan approves files up to 45 percent and, with strong reserves and credit, up to 50 percent. FHA files approve higher with compensating factors. Aim for 43 percent or lower going in; it leaves room for the appraisal, the insurance quote and the HOA dues that come in higher than the estimate. Our post on how much income you need for a $400K mortgage in Colorado runs the arithmetic.

Seasoning of funds

The lender wants the two most recent monthly statements for every account the down payment and closing costs come from, every page, including the blank ones. Money that has sat in the account for those 60 days is seasoned and needs no explanation. Money that arrived inside the window is a large deposit, and the underwriter asks where it came from. A transfer from your own savings is fine with the other statement. Cash from a garage sale, a side job paid in cash, or a friend paying you back is not documentable and is removed from your available funds. Consolidate the down payment into one account by day 60 and stop moving money.

Gift letters

A relative giving you part of the down payment signs a gift letter: donor name, relationship, amount, the property address, and the statement that no repayment is expected. Conventional and FHA loans accept gifts from relatives; conventional loans also accept them from a domestic partner or fiancé. The lender documents the transfer from the donor's account to yours, and on some files asks for the donor's statement to show the funds were the donor's. Have the gift wired before the appraisal is ordered so it is seasoned in your account by closing.

Employment history

Two years of continuous employment in the same line of work is the standard. A new job in the same field with a written offer letter and a start date before closing works on most files. Self-employed borrowers show two years of federal tax returns, and the lender averages the net income after write-offs, so a year of aggressive deductions cuts the approval. Commission and bonus income needs a two-year history to count. Anyone planning a change should make it 24 months before applying or 30 days after closing, not in between.

Pre-qualification, pre-approval, underwritten pre-approval

• Pre-qualification is a conversation. You state income and debts; the lender states a number. No credit pull, no documents, no weight with a Denver listing agent.
• Pre-approval is a credit pull plus a review of pay stubs, W-2s and bank statements by a loan officer. It produces a letter with a maximum price and a loan type. Most Front Range offers go in with this.
• Underwritten pre-approval sends the full file to an underwriter before you have a contract. The result is a commitment subject only to the appraisal and title. It lets you set a 21-day loan deadline in the Colorado contract and compete with cash on a Highlands Ranch or Littleton listing.

Ask for the third. The Colorado mortgage pre-approval guide lists the documents: 30 days of pay stubs, two years of W-2s and tax returns, two months of statements for every account, photo ID, and the gift letter if any. A pre-approval letter is good for 60 to 90 days, then the lender refreshes the credit and the pay stubs.

Shopping lenders and the Loan Estimate

Credit scoring models count every mortgage inquiry inside a 14-day window as a single inquiry, so get three quotes in the same two weeks. Once you give a lender six items, name, income, Social Security number, property address, estimated value and loan amount, the lender must deliver a Loan Estimate within three business days, and the form is identical from every lender so the rate, points and fees line up side by side. The Consumer Financial Protection Bureau publishes the range of rates lenders are quoting by state, credit score and loan type, so you know before the first call whether a quote is high.

The Kenna Real Estate Group works with Mike Oswald, VP of Mortgage Lending at Rate, NMLS 261003, Equal Housing Lender. You are free to use any lender. Out-of-state lenders such as A.S.A.P. Mortgage Corp review credit before a formal application as well; you are free to use any provider. Whichever lender you pick, ask for the underwritten pre-approval and a Loan Estimate on the same day.

CHFA and Colorado down payment help

The Colorado Housing and Finance Authority (CHFA) is the state's housing finance authority. It funds first mortgages through participating lenders and pairs them with down payment assistance, delivered as a grant or as a second mortgage, for buyers under county income limits who complete a CHFA-approved homebuyer education class. Buyers in Denver, Aurora, Lakewood and most metro cities also look at metroDPA, the regional down payment program run through participating lenders. Both stack with FHA, VA and conventional first mortgages. The programs, limits and how to apply are on our post on first time home buyer programs in Colorado and the government-backed home buying guide.

Taxes, insurance and HOA dues in the Front Range payment

The lender qualifies you on the full payment, not the principal and interest. Three Colorado line items change it:

• Property tax. A $600,000 Denver home pays $3,000 to $4,500 a year at the city's mill levy. The same price in a newer Parker, Castle Rock or Commerce City metro district pays $5,000 to $7,500 because the district's debt levy is added.
• Homeowner's insurance. Hail season from May to September makes Front Range premiums high: $2,000 to $4,000 a year on a $600,000 detached home, with a percentage wind-and-hail deductible on the roof.
• HOA dues. $30 to $150 a month in most detached subdivisions; $250 to $600 a month on a Denver condo with a master policy and elevator.

Get the tax bill from the county assessor's site and an insurance quote before you write the offer, so the approval survives underwriting. Buyer closing costs add 2 to 3 percent of price on top; see closing costs for Colorado home buyers.

The 90-day calendar

1. Day 90. Pull the three reports, dispute errors, pay cards under 30 percent.
2. Day 75. Gather two years of W-2s and returns, 30 days of pay stubs, photo ID.
3. Day 60. Consolidate the down payment into one account. Request the gift.
4. Day 45. Get three Loan Estimates inside 14 days. Pick the lender.
5. Day 30. Submit the full file for an underwritten pre-approval.
6. Day 14. Letter in hand, sign the buyer agreement, start touring with the Kenna Real Estate Group buyer team.
7. Day 0. Write the offer with a 21-day loan deadline.

Where to go next

• Search every home for sale in Colorado
• The Colorado home buyer's guide
• FHA vs. conventional loans for Colorado buyers
• How to get pre-qualified quickly for a mortgage in Colorado
• Mortgage options for first-time homebuyers in Colorado
• Meet the Kenna Real Estate Group agents

Talk to the Kenna Real Estate Group

The Kenna Real Estate Group, Keller Williams DTC, walks every buyer through this 90-day plan, connects buyers below 620 to Kenna Credit Care, and writes offers only with an underwritten pre-approval so the loan deadline is never the reason a Colorado contract fails. Call or text 303-955-4220. A live person answers. Not a robot, not a phone tree. Then search every home for sale in Colorado.