This type of loan is available only for owner-occupied residential structures. FHA insures the lender against potential loss. In the event the loan defaults, the lender is protected against losses. The losses are paid with mortgage insurance funds collected from all FHA borrowers.

Typically 1.75% is collected upfront but funded in the loan instead of coming out of the borrower's pocket and in addition another .85% of the loan collected monthly in the payment. A borrower may use this type of loan to purchase a home with as little as a 3.5% down payment. Borrowers can only have one FHA loan typically because it is for owner-occupancy only.

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