Which of the following describes an FHA loan?

An FHA loan, or Federal Housing Administration loan, is designed to help lower-income and first-time homebuyers access affordable mortgage financing. One of the key features that distinguishes an FHA loan is that it provides insurance on the loan for lenders. This insurance encourages lenders to offer loans to borrowers who may have less-than-perfect credit histories or lower incomes, as it mitigates the risk for the lenders in case of default.

This insurance provided by the FHA means that if the borrower fails to repay the loan, the lender can claim the amount from the FHA, making it less risky for lenders to provide loans to a broader range of borrowers. As a result, this option is particularly beneficial in supporting homeownership among those who may otherwise struggle to qualify for traditional financing.

Other options do not accurately describe the nature of an FHA loan. While there are special circumstances where some FHA loans offer minimal down payment options, generally a small down payment is required rather than no down payment at all. FHA loans are not exclusively for high-income borrowers; in fact, they are specifically targeted to assist those with lower incomes. Additionally, FHA loans can have fixed rates or variable rates, but the defining characteristic is not that they are variable-rate mortgages.