What is an FHA loan?

An FHA loan is a government-insured mortgage designed primarily to assist low-to-moderate-income borrowers in accessing home financing. This type of loan allows borrowers to qualify for a mortgage with lower credit scores and smaller down payments, often as low as 3.5% of the purchase price. The Federal Housing Administration (FHA) backs these loans, providing lenders with security against borrower default, which encourages them to offer more favorable terms.

The emphasis on helping low-to-moderate-income individuals makes FHA loans particularly attractive for first-time homebuyers who may not have substantial savings or a robust financial history. This is why option B accurately describes what an FHA loan is, highlighting its purpose and the demographic it serves. The other options do not capture the essence of FHA loans—instead focusing on characteristics such as fixed rates, adjustable rates, or substantial down payments, which are not defining features of FHA loans.