Understanding the FHA Loan History

The FHA loan program was created by the federal government after the Great Depression. It was introduced to help lower and moderate income individuals and families gain access to home ownership.

During the era of the Great Depression, foreclosures and defaults had risen significantly. As a result, the federal government designed a mortgage loan program that helped reduce the risk of lenders and stabilize the mortgage market as well.

In the year 1934, the government introduced the FHA loan program. Although FHA is a government-backed loan program, it’s not issued by the FHA. Instead, FHA-approved private mortgage lenders issue these loans. However, these loans are insured by the FHA. By insuring FHA loans, mortgage lenders are protected from default losses. If a borrower can’t repay the loan, the FHA will reimburse the FHA lender.

FHA loan features

FHA loans have risen in popularity due to their low down payment and credit score requirements.

In order to qualify for an FHA loan, you need a minimum credit score of 580. Even if you have a credit score ranging from 500 to 579, you can still obtain the loan. In case someone has no credit history,  the lender may check at other payment records, such as utility bills.

Apart from low credit score requirement, FHA loans require a minimum down payment of 3.5 percent. But, this is applicable to borrowers whose credit scores are greater than 580. Individuals with credit scores below 580 can get the loan with a 10 percent down payment.

FHA borrowers are required to submit complete documentation, such as bank statement, salary slip, tax returns, etc. to their lenders. In addition, borrowers have to pay insurance premium to the FHA to insure the loan. The insurance payment can be monthly or on an annual basis.

Who’s the right candidate for an FHA loan?

FHA Loans are suitable for low or moderate income level individuals who cannot qualify for alternative loans.

Similarly, if you have a bad or no credit history or lack of money to make down payments, then FHA loan is the right option.

Interested in applying for an FHA loan? Get in touch with us. With 5 years of experience in the mortgage industry, our professional brokers can help you secure a loan from reputable mortgage companies in California, Colorado, Michigan, Iowa, Illinois, and Washington.

We also deals in several other mortgage products, such as VA, conventional, adjustable, fixed-rate, flexible, jumbo, conforming, combined / hybrid ARMs, and more.