The Federal Housing Administration has been helping people become homeowners since the 1930s. In the 1980s the FHA became known for its bureaucratic tendencies and fell out of favor with the public. Instead many borrowers turned to private lenders who reaped the rewards of charging higher interest rates on subprime loans. Recently, however, as subprime lending practices are coming under increased scrutiny, many have turned, once again, back to the FHA for their loans.
There are a number of advantages to obtaining an FHA backed loan. Chief among them are the less stringent credit requirements. By looking at the "total scorecard" the FHA looks at not just an applicants full credit report, but also employment history, and how well one has paid utility and rent bills. Another plus is that the FHA wont automatically disqualify for having filed bankruptcy.
Unfortunately, there currently are a few drawbacks to FHA loans, although legislation has been put into action in Congress to alleviate some of these issues.. The loan limit for an FHA loan is modest to say the least at $363,000, although this might change in the near future. Unlike "no down payment" plans public lenders offer the FHA requires a down payment, typically at least 3 percent of the total loan. The longer application process and heavy bureaucracy is still around, but as more and more borrowers turn to them, the FHA has responded by quickening the process. Legislation has being introduced in the House of Representatives and the Senate to increase the loan limit to $417,000, to revoke the down payment requirement for borrowers and allow for 40-year mortgages.