Loan Requirements for Denver Buyers
Lenders evaluate buyers on five key metrics. Here's how each one works and what qualifies.
What Lenders Actually Look At
When you apply for a mortgage, lenders look at five things to decide whether to give you the loan. These aren't guidelines — miss the threshold on one and you don't close.
Credit score — how reliably you've repaid debt in the past. Debt-to-income ratio (DTI) — how much of your gross monthly income goes to debt payments. Down payment — determines whether you'll pay mortgage insurance and how much. Loan type (conventional, FHA, VA, jumbo) — each has its own approval thresholds. Loan term (15 or 30 years) — affects your monthly payment and your DTI.
Get one of these wrong and you'll either be denied or need to restructure your offer.
Credit Score
Your credit score tells lenders how reliably you've repaid debt in the past — and they use that to predict whether you'll keep it up.
The minimum score you need depends on the loan type.
| Loan type | Minimum credit score |
|---|---|
| Conventional conforming | 620 |
| FHA | 580 |
| VA | 600 |
| CHFA first-time homebuyer | 620 |
| Jumbo | 700 |
| Private lending | Varies (no official minimum, but lenders are selective) |
If your score is below 620, you're limited to FHA loans — and even then you'll pay higher rates and mortgage insurance. If you're below 580, you'll need to bring your score up before you apply.
Debt-to-Income Ratio (DTI)
DTI tells lenders what percentage of your gross monthly income goes to debt payments. Here's how to calculate it:
Add up all your monthly debt payments — car loans, student loans, credit cards, existing mortgages, and your new mortgage payment including property taxes and insurance. Divide by your gross monthly income — that's before taxes, 401K, and healthcare deductions. That's your DTI.
Example
John earns $4,000 per paycheck twice per month ($8,000 gross monthly).
His monthly debt obligations:
- Car payment: $200
- Student loans: $500
- New mortgage payment (with taxes and insurance): $2,000
- Total debt payments: $2,700
DTI: $2,700 ÷ $8,000 = 0.3375 or 33.75%
John qualifies under most loan types (all allow 43–55% DTI). If his new mortgage payment were $3,500 instead, his DTI would be 47.5%, which exceeds conventional lending limits (50% cap) but falls within FHA and VA limits (55% cap).
DTI limits by loan type
The limit depends on your loan type.
| Loan type | Max DTI |
|---|---|
| Conventional conforming | 50% |
| FHA | 55% |
| VA | 55% |
| Jumbo | 43% |
| CHFA first-time homebuyer | 55% |
If you're over the limit for your loan type, your options are: increase your income (the harder path), pay down other debt like credit cards or car loans, or lower the price you're targeting.
Down Payment and LTV
How much you put down directly affects whether you pay mortgage insurance — and how much.
The minimum depends on your loan type.
| Loan type | Minimum down payment |
|---|---|
| FHA | 3.5% |
| VA | 0% (eligible veterans only) |
| CHFA first-time homebuyer | 3% |
| Conventional conforming | 3% |
| Jumbo | 15% |
| Private lending | 20% |
If you put down less than 20%, you'll pay mortgage insurance — PMI on conventional loans, MIP on FHA loans. It protects the lender if you default, not you. On conventional loans it disappears once your balance drops below 80% of the home's value; on FHA loans with a down payment over 10%, it cancels after 11 years.
Loan Types: Trade-offs
Each loan type is built for a different kind of buyer. Pick the one that fits your situation.
Conventional Conforming
Most common if you have solid credit and at least 10% down. Loan limits are $766,550 in most of Denver (higher in some counties). Mortgage insurance drops off once you hit 80% LTV.
FHA
Good option if you're a first-time buyer, have a lower credit score (580+), or can only put down 3.5%. FHA loans include an upfront mortgage insurance premium of 1.75% rolled into your loan, plus ongoing monthly MIP. On a $500K purchase that upfront cost adds $8,750 to what you're borrowing — worth knowing before you commit.
VA
Available to eligible military and veterans. Zero down, no mortgage insurance, lower rates. If you qualify, it's hard to beat.
Jumbo
For purchases above $766,550. You'll need a higher credit score (700+), a lower DTI (43% max), and at least 15% down. Rates on jumbo loans typically run a bit higher than on conforming loans.
Private Lending
For buyers who don't fit the conventional, FHA, VA, or jumbo mold — self-employed income, a recent job change, lower credit, or unusual income documentation. Private lenders are flexible, but you'll pay meaningfully higher rates (typically 1–3 percentage points above prime) and need at least 20% down.
Mortgage Insurance (PMI and MIP)
Mortgage insurance protects the lender if you default — not you. You're the one paying for it.
PMI (Conventional Loans)
PMI costs 0.3%–1.5% of your loan amount per year, added to your monthly payment. On a $400,000 loan at 1%, that's about $400 a month extra. It cancels automatically once your balance hits 80% of the home's value — or you can request it once you're there.
MIP (FHA Loans)
MIP on an FHA loan has two parts: an upfront premium of 1.75% rolled into your loan, and ongoing monthly MIP of 0.4%–0.9% per year. On a $400,000 loan, that's $7,000 upfront plus roughly $130–300 a month. If you put down less than 10%, MIP is permanent. Put down 10% or more and it cancels after 11 years. If you put down 10%+ on an FHA loan, MIP cancels after 11 years (once your balance is below 78% LTV).
Action: Get Pre-Approved Before You Search
Don't start looking at homes until you have a pre-approval letter in hand. A lender will pull your credit, verify your income, and tell you the most you can borrow. It takes 2–3 days and saves you from falling hard for a home you can't actually buy.
When you meet with a lender, ask: "What's the most I can borrow given my credit, income, and down payment?" and "Will I pay mortgage insurance, and for how long?" The pre-approval letter answers both.
If you're planning to buy in the next 90 days and want to know whether your situation sets you up for the best loan terms — or you're just not sure which loan type fits — send me your target price range and I'll give you a straight read on where you stand.
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Paul McCoy, Realtor | Fathom Realty | License #: FA.100105533 | (319) 325-0668 | pmccoy626@gmail.com
Paul McCoy is a licensed real estate professional in Colorado. Equal Housing Opportunity.