The number of FHA loans issued shot up 126 percent in the first quarter of 2008 even though they still make up a just small part of the overall mortgage market. Demand for these often-neglected mortgages is surging because they do not require the higher down payments or stellar credit scores that lenders expect from borrowers for conventional loans. In addition, the amount of money people can borrow on these loans is up dramatically this year and many homeowners now find them attractive once again for both purchases and refinancing alike.

FHA’s market share is currently about 10 percent - up from 2 percent in 2005. The program made its biggest gains in pricier areas where the down payment requirements for other loans is out of reach for many borrowers. Most observers attribute the growth spurt in part to federal legislation that temporarily raised the FHA loan limits nationwide, broadening the number of people who can use these loans as a financing option. It also only requires a 3 percent down payment for purchases or a 3 percent equity position for refinances. Drawbacks include being able to fully document your income to qualify and the paperwork requirements can be a hassle.

With all the problems facing today’s mortgage marketplace, the FHA loan program stands out like a shining star. The only concern we can see is whether or not the agency can handle the growing workload.

Tags: FHA, mortgages