6 minute read
April 29, 2022

What are the Requirements for USDA Loans in Colorado?

What are the Requirements for USDA Loans in Colorado?
6 minute read
·
April 29, 2022

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If you’re considering buying a rural home, USDA loans for Colorado homebuyers are worth considering.

USDA loans, also known as USDA Rural Development Guaranteed Housing Loans, are home loans backed by the U.S. Department of Agriculture. USDA loans offer several benefits—like 100% financing, no down payment, and flexible credit requirements—making them popular choices for many eligible homebuyers in Colorado.

USDA loans in Colorado: eligibility overview

To qualify for a USDA loan in Colorado:

  • Your income needs to fall within a predefined income bracket
  • The property you want to buy must be in specific suburban areas or located in a rural area
  • The property must meet specific additional requirements

We’ll look at each of these in more detail below.

How do I qualify for a USDA loan in Colorado?

To qualify for a USDA loan in Colorado, you must be able to show that you have a reliable income, and your credit history must support your ability and willingness to repay the loan. 

While the USDA loan program does not have a minimum credit score, they do use criteria such as these for loan approval: 

  • Credit history and credit score
  • Your debt repayment history (Do you pay bills on time? do you have a history of missing payments?)
  • How long you’ve had credit
  • How much credit and debt you have

I have a short credit history. Can I still apply for a USDA home loan?

Without a lengthy credit history, borrowers can still be eligible for USDA loans in Colorado with additional credit verification, such as rental history, insurance, or utility payments history information. 

In addition to having an income that meets the low-income limits and demonstrating a willingness and ability to repay debt, the USDA uses several factors when determining a borrower’s eligibility.

Applicant eligibility

Borrowers must:

  • Be in need of “safe and sanitary” housing
  • Be unable to qualify for a different loan
  • Plan to live in the house they are buying (the property must be your primary residence. USDA loan’s can’t be use to purchase an income property or vacation home.)

The home itself must also meet several property eligibility conditions.

Property eligibility

Properties must:

  • Not exceed 2,000 square feet (there are some conditions where this can be exceeded)
  • Be beneath the loan limit for the area
  • Be residential (USDA loans are not available for commercial properties)

Step 1 of 7

In what ZIP code are you thinking of buying?

How can you tell if a house is rural?

To find out if your house meets the USDA’s definition of rural and qualifies for USDA loans in Colorado, check the USDA eligibility site by entering the address of your desired property. You can also search general eligible areas by using the map feature.

What credit score do you need for a USDA home loan?

The USDA does not have a fixed credit score requirement, but many lenders offering USDA-guaranteed mortgages require applicants to have a score of at 640 or more.

640 is the minimum score needed to qualify for the USDA’s automated credit risk evaluation system, “Guaranteed Underwriting System (GUS).”

What if my credit score is less than 640?

Borrowers with a credit score of less than 640 can still qualify with select lenders—but such applications will typically require manual underwriting, which can take longer to process or require additional documentation.

Is a USDA loan the same as a Rural Development Loan?

Yes, the USDA loans are provided through the USDA Rural Development Guaranteed Housing loans program. 

What is the income limit for a USDA loan in Colorado?

Because USDA home loans are aimed at helping low-income applicants and moderate-income households in Colorado, they have set adjusted income limits for borrowers. 

Currently, USDA general loan income limits for households 1-4 persons are $91,900, and $121,300 for 5-8 people households. 

However, USDA income limits in Colorado vary by county, ranging roughly from $15,450 in Kiowa County for one person to $153,600 for a 5-8 people in Pitkin County.

How much down payment is required?

The USDA does not have a down payment requirement; however, borrowers with assets above certain asset limits may be asked to put a portion of those assets toward the cost of the home. 

Your home loan specialist at Assist Home Loans can go through your financial situation with you and see if you meet the USDA’s zero down eligibility. 

How much can you borrow with a USDA home loan?

While each application is considered separately, based on an individual information, borrowers can use the self-assessment calculator on the USDA website to see how much they can potentially qualify for with a USDA loan.

The “Section 502 Direct Loan Program” is an excellent start for most borrowers.

After inputting relevant information, like monthly income and debts, property location, and estimated property taxes, the calculator offers a preliminary review of how much they might qualify for. 

Ultimately, the USDA determines a borrower’s eligibility by using a combination of factors, including information provided by the applicant, the maximum loan amount (based on your ability to repay the loan) and USDA loan limits for the repayment, as well as the Colorado county where your property is located. 

USDA loan rates vs. VA loans

USDA interest rates are among the lowest interest rates available. 

VA loans are the only other home loans that come close to matching the lower interest rate offered by the USDA home loan program.

Because federal government departments back both VA loans and USDA loans, they can often offer below-market mortgage interest rates. 

FHA loans and conventional loans

While FHA loans are also backed by a government agency, the Federal Housing Authority, they compare more closely to conventional loans offering rates that can be almost a percentage point higher than USDA rates. 

But it’s important to remember that the mortgage rate you will receive will factor heavily on your personal financial information.

Does USDA guarantee a lower interest rate?

Applying through the USDA home loan program doesn’t automatically mean you’ll receive a “below market” interest rate

Additionally, because each USDA lender will have its own criteria for setting interest rates, they can vary. Therefore, it’s good to reach out to mortgage lenders to see what interest rate you can receive. 

Contact Assist Home Loans for your next purchase or refinance

If you’re ready to apply for a mortgage, you can start your application online in minutes. 

But if you still have questions about qualifying for USDA loans in Colorado or finding out which other programs you may qualify for, reach out to the Colorado loan specialists at Assist Home Loans today.

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