What type of properties are FHA loans restricted to?

FHA loans are specifically designed to support homeownership for individuals and families, which is why they are restricted to owner-occupied properties. This requirement ensures that the assistance provided through FHA loans is utilized for primary residences, promoting stable housing situations and community development. The Federal Housing Administration (FHA) aims to assist borrowers who may not qualify for conventional financing due to lower credit scores or smaller down payment capabilities.

By focusing on owner-occupied residences, the FHA not only helps individuals achieve homeownership but also allows the agency to promote responsible lending practices and lessen the risk associated with investment properties or commercial properties, which are typically subject to different kinds of risk and financing mechanisms. Additionally, second homes or vacation homes are also excluded from FHA financing, as these types of properties do not align with the FHA's mission to support primary home ownership for borrowers.