The Federal Housing Administration (FHA) was created by Congress in 1934 to help combat a plummeting housing market which resulted from the effects of the Great Depression.
Part of the National Housing Act of 1934, FHA-insured loans revolutionized home lending which previously had only offered limited loan terms and difficult repayment schedules. Typical home loans during the period were only of a duration of three to five years and typically had a balloon payment at the end of the term with no option of refinancing.
The FHA brought stability to the housing market by regulating the rate of interest and the terms of the mortgages that it insured.
The FHA doesn’t originate loans, but instead, insures lenders against losses in case of default thus providing mortgage lenders the opportunity to originate loans to higher risk borrowers like those who may be credit challenged or those who may lack a mortgage payment history like first-time home buyers.
Loans insured by the Federal Housing Administration (FHA) are usually the easiest and most flexible types of mortgage loans to secure.
The basic requirements for securing an FHA loan include:
– Two years of steady employment, preferably with the same employer
– Income that has either been steady or increasing over the previous two year
– No more than two 30-day late payments over the previous two years with a minimum credit score of 620 (though no credit score may be acceptable in some cases)
– Your mortgage payment cannot exceed 31 percent of your gross mortgage with your total obligations not exceeding 43 percent of your gross income
– Bankruptcies must be at least two years old while a previous foreclosure must be at least three years with perfect credit since the blemish
Although these are just general basic requirements, different lenders may also have additional or different requirements in order to obtain an FHA loan.