FHA loans are more common now than in the past for just that reason, the low down payment requirement of 3.5%. All loans require at least 2 yrs employment, 2 yrs rental history, proof of income and money for your down payment. However, the FHA is known for a common sense approach to loan approval. The borrower does not have to fit into a specific box. Don't get me wrong, they're not doing funky loans or giving away free money but the guidelines are flexible enough to give a person who has no credit a loan if they have stable employment and savings, etc.
FHA loan rates are very competitive. In addition, a borrower can get their down payment as a gift from a relative or they can use down payment assistance from a governmental agency like SHIP.
Remember FHA loans are for primary residences only and borrowers can't use more than 1/3 of their income towards their mortgage.
FHA also requires appraisals from FHA certified appraisers. The heydey was due in large part to speculators and some unscrupulous appraisers, mortgage brokers and realtors. Most of those parties used conventional loans - interest only, no verifications, stated income - to keep the bubble going.
FHA loans were and continue to be less risky because of their approach to underwriting. Yes, it may require more paperwork, but the paperwork is to protect the consumer and the intergrity of the loan.
Patrick's experience sounds as if he was trying to get an FHA Spot Approval for a townhome or condo. Those are hard to come by and the lender should have disclosed to all parties that there is no guarantee if the complex was not FHA approved to begin with.
Best of Luck,
Down Payment Assistance Specialist/Loan Officer
Enterprise Mortgage Group
Winter Park, FL