What is an FHA loan?

An FHA loan is a specific type of mortgage that is insured by the Federal Housing Administration (FHA), a government agency. This insurance protects lenders against losses if the borrower defaults on the loan, making it easier for people with lower credit scores or smaller down payments to qualify for a mortgage. Since these loans are designed to promote homeownership, they often require lower down payments—sometimes as low as 3.5%—and have more flexible qualification requirements compared to conventional loans.

The other options do not accurately describe FHA loans. For instance, adjustable-rate mortgages that are offered by private lenders refer to a different structure of loans that vary in interest over time, which does not encompass the specific guarantees and benefits of FHA loans. Additionally, the requirement of a 20% down payment is not associated with FHA loans; rather, they enable borrowers to purchase with much smaller down payments. Lastly, FHA loans are primarily intended for owner-occupied properties rather than investment properties, which typically have different financing options and guidelines.