Which of the following statements about an FHA loan is CORRECT?

The FHA does not guarantee that a property is free of physical defects; instead, it requires that properties meet certain safety and livability standards through an appraisal process. While the FHA aims to ensure properties are safe and habitable, it does not provide a warranty or guarantee regarding the physical condition of the home.

This statement is incorrect because the FHA itself does not lend money directly to borrowers; rather, it provides insurance to approved lenders who offer the loans. Furthermore, while closing costs can be negotiated, it is not a requirement that the seller pays all of them, and borrowers may be responsible for some or all closing costs depending on the agreement.

FHA insurance does not cover loan repayment in the event of a borrower's death. The insurance is designed to protect lenders against borrower default, not to pay off loans upon death. The responsibility for loan repayment typically falls to the borrower's estate or heirs.