An FHA loan is a mortgage loan insured by the Federal Housing Administration and issued by an FHA-approved lender. FHA allows down payments as low as 3.5%, along with more flexible credit guidelines than many conventional loan programs. To obtain the guarantee of FHA and offset the risk of these flexible features, qualified borrowers pay for mortgage insurance and these premium payments are made to FHA. In the event of default, FHA will pay a claim to the lender to cover at least a portion of their loss.