It was in the 1930s during the Great Depression, a period of time known for being the worst economic disaster in our country’s history, when banks began lending money to business owners and potential homeowners. Oddly, the idea of mortgages was created by insurance companies with their hopes borrowers would default on their property loans. The homeowner would mortgage their property to the bank, which acted as collateral. This acted as a guarantee a borrower would make monthly installments towards the loan in a timely manner to the bank. In the event the borrower was not able to keep up with their mortgage payments to the bank, the insurance companies would repossess the property. It was the insurance companies who insured the loans given by the banks. By 1933, almost 50% of all property loans went into default! Although mortgage interest rates were only 6% at the time, the down payment required for a property was as much as 50%. This was too high of an amount for most home buyers. Fortunately, FHA (the Federal Housing Association which was created in 1934 by the US government) changed that requirement. Fortunately today, depending on the type of loan, a bower can make a down payment with as little as 3.5% towards the purchase price of a home.
