What type of loan is backed by the Federal Housing Administration (FHA)?

A loan backed by the Federal Housing Administration (FHA) is specifically designed to support homebuyers, particularly those with lower to moderate incomes. The FHA loan program was established to facilitate access to home financing by reducing some of the barriers that potential homeowners face, such as high down payment requirements and stricter credit score criteria.

FHA loans are characterized by lower down payment options, which can be as little as 3.5% for qualified borrowers, as well as more lenient credit score requirements compared to conventional financing. Additionally, these loans are insured by the FHA, which means that if a borrower defaults, the government will cover a portion of the lender's losses. This insurance mitigates risk for lenders, prompting them to offer loans to individuals who may have previously been excluded from the mortgage market.

Understanding this context helps to clarify why FHA loans are distinct from other types of loans such as conventional loans, jumbo loans, and VA loans, all of which operate under different guidelines and purposes. Conventional loans are typically not backed by any government agency, jumbo loans exceed conforming loan limits, and VA loans are specifically for eligible veterans, active-duty military personnel, and certain members of the National Guard and Reserves. Each of these options serves different populations and