What is a FHA loan?

An FHA loan is a type of mortgage that is insured by the Federal Housing Administration. This insurance allows lenders to offer loans to borrowers who might not qualify for conventional financing due to lower credit scores or limited down payment funds. The primary purpose of FHA loans is to help low to moderate-income borrowers achieve homeownership by making loans more accessible. Borrowers are often required to pay mortgage insurance premiums, which protect the lender in case of default.

The focus of FHA loans on accessibility for those with lesser financial means distinguishes them from conventional loans, which typically require higher credit scores and down payments. The other options don't accurately reflect the nature of FHA loans. For instance, a conventional loan without any insurance does not provide the same level of borrower support as an FHA loan does, and a government-issued loan for luxury properties does not align with the FHA's purpose or target demographic. Additionally, a mortgage provided by local credit unions does not showcase the broader federal insurance element that characterizes FHA loans.