FHA Mortgages: The Original Loan For Home Buyers
The FHA mortgage program is the original U.S. home loan.
The program dates to the National Housing Act of 1934, ten years before the VA loan program for veterans was created, and thirty years before the first conventional mortgage was made.
Before the FHA, mortgage loans were different.
80 years ago, mortgage loans came from community banks. Banks took deposits from neighborhood families, then lent those deposits out as home loans.
Banks required down payments of 40% or more on their loans, and insisted that loans were paid back in five years or fewer.
As the economy spiraled downward during the Great Depression, unemployment rates climbed. Homeowners were unable to repay their loans in the community which led to a 6,000 percent increase in bank failures.
The housing market lost 29 percent of its value.
The government created the Federal Housing Administration to jump-start lending, and put an end to the Great Depression. The agency offered insurance to mortgage lenders for loans that might go bad.
With FHA mortgage insurance available, banks felt safe to make loans to home buyers. Housing led the U.S. economy out of the depression.
The FHA remains integral to U.S. housing and first-time home buyers. It's the largest insurer of loans in the world.
To qualify for FHA mortgage insurance:
- Loan lengths must be 15 years or longer
- Loan payments must include principal + interest payment
- Income and credit standards must be maintained
All home buyers who meet FHA mortgage insurance standards qualify for an FHA mortgage.
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