What is an FHA Loan?

An FHA loan is specifically defined as a loan that is insured by the Federal Housing Administration. This government-backed insurance is designed to protect lenders from losses due to defaults on loans. Because of this insurance, lenders are more willing to offer loans to borrowers with lower credit scores and those who cannot make substantial down payments.

FHA loans typically allow for lower down payments—sometimes as low as 3.5%—and are particularly useful for first-time homebuyers or those with less conventional financial backgrounds. This backing by a federal entity allows for more favorable terms for borrowers, further supporting the goal of making homeownership accessible to a broader range of people.

In contrast, loans guaranteed by private lenders do not provide the same safety net, and those provided by state governments would be governed by different rules and guidelines than those set forth by the FHA. While some loan products may allow for no down payment, this is not a defining characteristic of FHA loans specifically.