History of Mortgages

Buying a home is no easy task. With the low rates that we’re seeing across the industry, we can’t help but think of how mortgages came to be. Before we get started on where mortgages originated, we should cover what the term “mortgage” actually means. The word “mortgage” actually comes from two Latin words meaning “death pledge.” Thankfully, when you buy a house today, we don’t refer to the process as a death pledge, no matter how grueling the process can be.

Let’s get back to the history. Mortgages, as related to homeownership, were first mentioned in English common law documents dating all the way back to the 1190s. While these mentions don’t exactly line up with the modern-day mortgage, they do lay out the basics of the mortgage system we know today.

Mortgages started to become prevalent in American society during the late 1800s and the early 1900s when we saw an increase in immigration to the United States changed the housing landscape. However, mortgages in these early years were not favorable to the American citizen. In order to obtain a mortgage, the borrower would need to have a down payment of 50%, agree to a loan term of 5 years or less, and make a large “balloon” payment to the bank within the first few years of the loan.

Luckily, mortgage terms evolved after the Great Depression with the creation of the Federal Housing Administration in 1936. FHA promoted home ownership by having a long term, fixed rate mortgage. Today, FHA loans are responsible for getting those with a less-than-perfect credit score, first time home buyers, and others hopeful home buyers into a home of their dreams. Because of the FHA, to get a mortgage today your down payment can be as little as 3%, and loan terms are up to 30 years. With the intervention of government programs like FHA and more, the American Dream has become less of a dream and more of a reality for millions of Americans.