An FHA loan is a mortgage insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development. The government insurance reduces lender risk, allowing more flexible qualification than many conventional loans.
FHA loans are popular with first-time and lower-credit buyers because they allow down payments as low as 3.5 percent with a qualifying credit score. In exchange, borrowers must pay mortgage insurance premiums, including an upfront premium and an ongoing annual premium.
Unlike conventional PMI, FHA mortgage insurance often lasts for much of the loan term unless the borrower refinances, and the loans are subject to property condition standards and loan limits. They are a common path to homeownership for buyers with limited savings.