FHA loans are mortgages insured by the Federal Housing Administration. Because the government insures the lender against loss, FHA-approved lenders can offer more lenient credit requirements (580+ for 3.5% down) and lower down payments than conventional loans.
FHA loans are especially popular with first-time buyers and borrowers who have had past credit events (bankruptcy, foreclosure). Down-payment gifts from family are allowed for 100% of the down payment, which is rare in mortgage underwriting.
The main trade-off is mortgage insurance: upfront MIP of 1.75% and monthly MIP that usually lasts the life of the loan. Many FHA borrowers refinance to conventional once they reach 20% equity to eliminate MIP.