A Brief History of Mortgages
If you don’t like mortgages, you can blame the FHA.
But before you start picking up torches and brainstorming catchy things to write on your picket sign, let me just tell you that the alternative before was just to not buy a home. Period.
Before the 1930’s, only 4 in 10 American households owned a home. Of those that did own homes, about 1 in 10 eventually found themselves at risk of foreclosure.
To make matters worse, the first few “mortgages” that existed tried to cheat the consumer. Before banks started to take over, insurance companies used to offer financing for homes. However, they only lent money to clients in the hopes that they would default on their payments, thereby allowing them to take over their homes.
Other options for financing were limited to interest-only loans that ended in balloon payments. This meant that borrowers had to pay off the interest on their loan first, before they could start paying for the actual house.
Fast forward to nowadays where the homeownership rate remains a healthy 64.8% while the foreclosure rate remains a low 1 in every 2471 houses (or .04% of homes).
So when did this start to change?
It all started in 1934, in the midst of the Great Depression. In order to encourage Americans to invest in homes, the Federal Housing Administration (FHA) created a more affordable type of mortgage.
Through this new deal, consumers had the benefit of 80-90% loan-to-value (LTV), which meant that their mortgage was close in value to the worth of their house. They also got longer loan terms, increasing from only 5 years to 15 years. This gave consumers more time to pay off their mortgages. Lastly, it gave homeowners the ability to pay off both interest and the principal amount at the same time, massively decreasing the amount of interest they had to pay.
The FHA also created quality standards for houses so that consumers had the benefit of more secure and reliable homes. Go FHA!
Commercial lenders then followed the FHA’s example, allowing Americans to have a wide variety of lenders to choose from.
What does this mean for you?
Because of the FHA’s groundbreaking work in mortgages, consumers today get to have their pick of lenders. From direct lenders to banks, you can now shop for the most competitive rates in mortgages. Unfortunately, many people today throw away this advantage and skip the process of comparing rates entirely.
As a digital mortgage broker, we at Shop Your Own Mortgage make this process easy. We work with over 25 different mortgage lenders and help you to find the best mortgage rates and terms. After you complete just one application, we ship your application out to our lenders who then respond with their best offers. Then, you simply pick the mortgage offer that suits you best!
Through our mobile app, you can shop different lenders, find the best rates, and get pre-approved without even leaving your home. To learn more about the specific mortgage lenders we work with, reach out to us at Shop Your Own Mortgage today!