Which of the following best describes an FHA loan?

An FHA loan, or Federal Housing Administration loan, is a type of government-backed mortgage designed to help individuals purchase homes with more lenient qualifying standards than conventional loans. This means that borrowers typically have more flexible credit score requirements, lower down payment options, and higher debt-to-income ratio allowances. The primary purpose of an FHA loan is to make homeownership more accessible to first-time buyers and those with limited financial resources.

The unique structure of FHA loans, which includes insurance provided by the government, allows lenders to offer these more favorable terms since they are partially protected against loss. This reduces the risk for lenders and facilitates a wider range of borrowers to secure financing for a home.

In contrast, the other options lack the attributes that define FHA loans. For example, the option referencing high-interest rates or luxury homes does not align with the goal of FHA loans, which is to provide accessible financing. Additionally, the mention of loans exclusive to veterans pertains specifically to VA loans, which cater to a distinct group of borrowers and do not encompass the broader criteria that FHA loans offer.