Before getting into the topic of FHA Eligibility, let’s mention a brief background first on FHA Loans. These are Federal Housing Administration-backed home loans, an option provided to potential borrowers and have been since 1934.
First, lenders have to willingly become an FHA approved lender. Additionally, the FHA loan program is a voluntary one, meaning, banks and other creditors are not required to participate.
Basically, the FHA provides mortgage insurance which covers loans underwritten by approved lenders. This insurance can cover single and multi-family homes. The benefits of FHA loans is that borrowers are assured access to lower down payment requirements, lower closing costs, easier qualifying with credit, and access to other resources like down payment assistance.
FHA Eligibility Starts with your FICO Score.
The Great Depression extended from 1929 to 1939. During these years, and before, America was not a nation of homeowners. During the 1930s only about 1 in 10 of all Americans owned a home. The rest rented or were homeless.
In 1934 Congress created the Federal Housing Administration, in part, from the National Housing Act of 1934 as part of the New Deal. Its purpose was to make housing and home mortgages more affordable. It was also designed to halt the wave of bank foreclosures on family homes during the Great Depression.
The FHA doesn’t just outline eligibility requirements for potential homeowners seeking loans from approved lenders. It also sets standards for construction and underwriting. The goal of the Federal Housing Administration has always been to improve the housing standards, conditions, and availability as well as to stabilize what was an unstable mortgage market.
Before the FHA most mortgages were limited to 50% of the home’s value, which was underwritten for a period of 3 to 4 years, after which, a balloon payment for the remaining amount would come due. These loan practices and standards made it impossible for 90% of Americans to become homeowners.