Question 13

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

This statement accurately describes the function of the FHA in the lending process. The FHA does not lend money directly to borrowers; rather, it provides insurance to approved lenders, which encourages them to offer loans to individuals who may not qualify for conventional financing.

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

This statement is incorrect. The FHA does not guarantee that properties are free of physical defects. Instead, it requires properties to meet certain safety and livability standards to qualify for an FHA loan, but it does not provide a guarantee against defects.

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

This statement is correct. FHA-approved lenders are the ones who provide the financing to borrowers, while the FHA insures these loans, which reduces the risk for lenders and facilitates access to home financing for borrowers.

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

This statement is incorrect. The FHA does not lend money directly to borrowers; it only insures loans made by approved lenders. Additionally, while sellers can contribute to closing costs, they are not required to pay all of them.

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

This statement is incorrect. FHA insurance does not pay off the loan in the event of the borrower's death. Instead, it protects the lender against losses if the borrower defaults on the loan.

Conclusion

Option B is definitively correct as it clearly outlines the role of FHA-approved lenders and the insuring function of the FHA. The other options misrepresent the FHA's role in the lending process or incorrectly describe its responsibilities, making them incorrect in the context of FHA loans.