What is an FHA loan?

An FHA loan is specifically a mortgage that is insured by the Federal Housing Administration. This means that if the borrower defaults on the loan, the FHA will cover a portion of the lender's losses, making it a less risky investment for lenders. As a result, this insurance allows borrowers to qualify for loans with lower credit scores and down payments compared to conventional loans. Generally, FHA loans require a lower down payment—often as low as 3.5%—which makes home ownership more accessible to first-time buyers and those with limited financial resources.

The other options describe different types of loan scenarios that do not apply to FHA loans. For instance, loans for purchasing investment properties can fall under various categories, but they are not specifically tied to FHA loans. Additionally, while variable interest loans refer to interest rates that can fluctuate based on market conditions, FHA loans typically have fixed rates as part of their offerings. Lastly, a conventional mortgage without insurance does not carry the backing of the FHA, which fundamentally differentiates it from an FHA-insured loan.