Which program mandates that the real property must be owner-occupied and carries a prepayment penalty?

The FHA Loans program is structured to promote homeownership among lower to moderate-income individuals and families. One of the defining features of FHA loans is that they require the property to be owner-occupied. This means that the borrower must reside in the property as their primary residence, which helps to ensure the sustainability and stability of neighborhoods.

Additionally, FHA loans may include provisions for prepayment penalties, depending on specific loan terms and lender requirements. The prepayment penalty is a fee that the borrower incurs if they pay off the loan early, intended to protect the lender's investment and recover some of the costs associated with loan origination.

In contrast, other loan types like conventional loans, VA loans, and USDA loans have different stipulations regarding occupancy and prepayment penalties. For instance, while VA loans also encourage owner-occupancy, they do not typically impose prepayment penalties. Conventional loans may have diverse occupancy rules but generally do not have prepayment penalties either. USDA loans are designed specifically for rural properties and similarly require owner occupancy without a standard prepayment penalty.

Thus, FHA Loans stand out in this regard for requiring owner-occupancy and potential prepayment penalties, making it the correct choice for the question.