Question 2

An FHA-approved lender lends the money to the borrowers and the FHA insures the loan.

An FHA loan involves the process where an FHA-approved lender provides the funds to the borrower, while the FHA insures the loan against defaults. This insurance protects the lender, making it easier for borrowers to qualify for a loan.

A) The FHA guarantees that the property has no physical defects.

This statement is incorrect because the FHA does not guarantee a property is free of physical defects. Instead, it requires that properties meet certain safety and livability standards, but it does not cover all potential defects.

B) An FHA-approved lender lends the money to the borrowers and the FHA insures the loan.

This statement is correct as it accurately describes the relationship between FHA-approved lenders and the FHA. The lender provides the loan, while the FHA insures it, mitigating the lender's risk.

C) The FHA lends the money to the borrower and the seller pays all closing costs.

This option is incorrect because the FHA does not directly lend money to borrowers; rather, it insures loans made by approved lenders. Additionally, while sellers can contribute to closing costs, it is not a requirement that they pay all closing costs.

D) The FHA insurance pays off the loan if the borrower dies.

This statement is false as FHA insurance does not provide for loan repayment in the event of the borrower's death. The insurance is designed to protect lenders against borrower defaults, but it does not settle debts of deceased borrowers.

Conclusion

The correct answer is option B, as it accurately reflects the role of FHA-approved lenders and the FHA’s insurance function in the loan process. Options A, C, and D misrepresent the FHA’s responsibilities and the nature of the loan agreement, thereby failing to capture the fundamental aspects of FHA loans.