(Editor’s Note: The following article is by Samantha Taylor, a Community Mentor with experience writing about the mortgage industry. Today, she covers the start and growth of FHA and FHA loans.)

The Federal Housing Administration (FHA) program came into existence during the Great Depression of the 1930s. This program was mainly developed to help Americans, with low income, in buying their homes. It became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing in the year 1965.

An FHA loan is a mortgage loan which is insured by the Federal Housing Administration. Such loans can only be issued by federally qualified lenders. The FHA loans primarily serve those who cannot afford to pay a PMI (private mortgage insurance) or make a 20% conventional down payment while buying a home.

Let’s take a look at the achievements of FHA since its inception:

1930′s -1940′s: The National Housing Act of 1934 helped in the creation of FHA. During this time period, the FHA mortgage programs mainly helped in the financing the homes of veterans and their families who returned after the war.

1950′s – 1960′s: During this time span, the FHA helped in construction of millions of units of privately-owned apartments. These apartments were mainly built for the elderly, handicapped and lower income people.

Also, FHA served as an insurance agency for mortgages which were made by private lenders. Moreover, various subsidy programs were established by the Fair Housing Act of 1968 during this time.

1970′s – 1980′s: Survival of the private apartment buildings was threatened due to the increase in energy costs. FHA offered emergency funding in order to save these cash strapped properties.

The Housing and Community Development Act was passed during this period. With time, various changes were introduced in this Act which raised ceilings on single-family loan amounts for savings and loan association lending. A new FHA rental subsidy program for middle-income families was also introduced during this time.

1990′s -2000: This time period saw the expansion of American economy. FHA kept on helping people with various mortgage packages which would suit the borrower’s need and situation.

Present Scenario: In recent times, FHA has even made various changes in its eligibility criteria. Some of these are listed below:

• Down payment – When the FHA mortgage program was introduced, it also covered the down payment requirement of the borrowers. However, with time, the criteria have changed. People looking for FHA loans will now have to provide 3.5% down payment with possibility of that increasing to  5% down payment in the near future.
• Credit score – When the FHA loan program came into existence, the approved lenders did not receive any guidelines regarding credit scores. However, before the real estate crisis hit the mortgage market, the FHA modified its policies and started using an automated system called “Total Scorecard.” FHA still doesn’t have a minimum credit score, but most lenders have an “overlay” credit score of 620 with a very few that will lend down to 560.
• Mortgage Insurance – In order to get a FHA loan, the borrowers will pay for mortgage insurance which is added to their monthly payments except for 15 year loans of 90% or less. There is also UFMIP (up front mortgage insurance premium), a financed amount that was recently increased to 2.25% from 1.75%.  Earlier, this insurance payment was around 0.5% of the mortgage balance. However, now, it has been raised to 0.55% of the loan balance for those who put less than 5% down.

In a further development, since last year, seniors can even take out FHA insured reverse mortgages in order to buy their primary home. The Senior Reverse Mortgage has been refined of late and is helping seniors maintain living in their homes when other expenses go up.

The fact remains that a large number of homeowners would not have been able to purchase a home if the FHA hadn’t taken the responsibility of insuring mortgages and helping people pay down their home loans in times of crisis.

Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like ‘Mortgage that you can afford’, ‘Mobile Home Loan with Bad Credit’, and ‘How much mortgage can I borrow?’

Contact me

Navigating the mortgage approval process can be daunting. You need someone on your side. I am available right now to help you with the loan process and know the ins and outs of FHA, VA, USDA and conventional financing. If you want to buy a home using an FHA loan or refinance using VA, I am here to help. Contact me at Alpine Mortgage Planning, 1200 Executive Pkwy., Ste. 100, Eugene OR 97401, 541-342-7576/541-221-3455 cell or by e-mail. Only you can make the choice it is time to get the process started.