What characterizes an FHA-insured loan?

An FHA-insured loan is characterized by being backed by the Federal Housing Administration. This insurance protects lenders against losses that may occur if a borrower defaults on the loan. It allows lenders to offer more favorable terms to borrowers, such as lower down payments, which can be as low as 3.5%, and potentially lower interest rates. The presence of this insurance encourages lenders to finance mortgages for a broader range of borrowers, including those with lower credit scores.

The scope of FHA loans is broader than just first-time buyers—they can be available to repeat buyers as well, provided they meet the specific requirements. This flexibility contributes to the accessibility of homeownership for a diverse group of buyers, making it a significant part of the U.S. housing market. The focus on insurance rather than specific loan features like interest rates or down payment requirements highlights its fundamental role in the structure of this type of loan.