New York Real Estate Salesperson ExaminationFinancingMedium
A real estate agent is advising a seller who wants to offer a portion of the purchase price as a loan to the buyer, allowing the buyer to make a smaller down payment and avoid some traditional lender fees. This arrangement would typically be structured as a:
- APurchase Money Mortgage.
- BWraparound Mortgage.
- CConstruction Loan.
- DReverse Mortgage.
Show answer & explanationAnswer & explanation
Correct answer: A. Purchase Money Mortgage.
A purchase money mortgage is a loan made by the seller to the buyer to finance the purchase of the property. This allows the seller to act as the lender, often providing more flexible terms or enabling buyers with less traditional financing options.
Why the other options are wrong
- B. A wraparound mortgage is a junior loan that encompasses an existing first mortgage, with the seller receiving payments for both, not simply financing a portion of the purchase.
- C. A construction loan is short-term financing for building a property, not for a seller-financed purchase.
- D. A reverse mortgage allows homeowners to convert home equity into cash, typically for seniors, and does not involve a seller financing a buyer's purchase.
Purchase Money Mortgage
A mortgage granted by the buyer to the seller as part of the purchase price of real estate. The seller effectively acts as the lender.
- Seller provides financing to the buyer.
- Often used when traditional financing is difficult.
- Can offer more flexible terms.
Memory trick: Purchase money means the seller helps you fund the purchase.