The requirements for Conventional loans in Colorado

Introduction

Conventional loans do not have government insurance, but private lenders issue them according to their terms and conditions. Conventional home loans in Colorado can be used for various home needs such as buying first homes or luxury home; one can also use mortgage loans to purchase condos, and so on. The loans have many requirements, as discussed below:

Down payment

Conventional loans in Colorado require a down payment as little as 3% which is even lower than that of FHA loans. However, a down payment smaller than 20% requires one to pay for mortgage insurance, which is removed with the attainment of 20% equity on loan. It is possible to raise funds for a down payment as gifts from friends or relatives or even from a non-profit agency. The amount of down payment helps to determine the interest as well as the PMI and in essence, the overall monthly payments.

Private Mortgage insurance

Down payment, less than 20% requires that a home buyer pays for mortgage insurance, which ceases once the home equity reaches 20%. With good credit score, the PMI can be little. Private mortgage insurance companies have different rates for PMI, and so the buyer should request their mortgage lenders in Colorado to shop for the best PMI cost.

Credit scores

Conventional loans in Colorado require a home buyer to have a credit score of 680 or higher, but one with a lower score can still apply. A low credit score means one paying more for the PMI and the interest rates are also more for a low credit score.

Debt-to-income ratio

For conventional loans, the DTI ratio is 45% but it can go higher with compensating factors like high credit scores and cash reserves. Lower DTI increases the chances of approval for a conventional loan in Colorado. One should get a pre-approval before applying for the loan.

Income and asset documentation

One should provide documentation to prove their income and assets. Some mortgage lenders require the homebuyer to provide two months bank statements, one-month pay stubs, two-year tax returns if self-employed and so on.

Conventional loans and bankruptcy

One can still be pre-approved for a traditional mortgage after bankruptcy and waiting for a specific period. The home buyer should, however, prove that they have re-established their credit, and the lender determines the reason for bankruptcy.

Conclusion 

A home buyer wishing to take advantage of conventional loans in Colorado for purchasing their homes should first understand all the requirement s of this mortgage. One should then try and work on their credit, debts and get the proper documents to be qualified. It is advisable, however, that one talks to different mortgage lenders in Colorado to know their requirements.