FHA loans are federally backed loans insured by the Federal Housing Administration. FHA loans are traditionally used by buyers who cannot come up with the larger down payments required on a Conventional loan (which are normally 5% down to 20% down). FHA loans were typically used more by lower to moderate income buyers, however, that has all changed recently.

The program started during the Great Depression of the 1930s, when the rate of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance to encourage them to lend.

FHA loans fell out of favor during the real estate boom of 1998-2006, as sellers did not want to be exposed to the more marginally qualified buyers that were usually attached to an FHA loan, nor did they want to hassle with the more stringent appraisal requirements of an FHA loan.

However, in a buyer’s market, FHA loans are now commonly accepted in most markets, and FHA loans have become a savior for many home buyers, and the real estate and mortgage industry in general. If it were not for the FHA loan, many real estate transactions would not occur.

FHA loans have more relaxed underwriting standards, below is a sample: Read the rest of this entry »