Which statement best describes a purchase money mortgage?

Which statement best describes a purchase money mortgage?

• A. A loan provided by a traditional bank to the buyer
• B. A loan provided by the seller to the buyer that is secured by the property
• C. A mortgage insured by a government agency
• D. A reverse mortgage

Answer: (B)

The idea being tested is seller financing, where the seller provides the loan for the buyer to purchase the property. In this setup, the buyer signs a promissory note for the financed amount and the deed (or mortgage) is placed on the property as collateral. Because the loan is secured by the property, the seller has the same remedies as any lender—if the buyer defaults, the seller can foreclose and recover the property. Terms are negotiated directly between buyer and seller, including down payment, interest rate, and how the loan is repaid. This option is often used when a buyer can’t obtain traditional bank financing or when a seller wants to facilitate a sale and possibly earn interest. The other scenarios describe different lending sources or structures: a conventional bank loan involves a lender other than the seller, a government-insured mortgage refers to FHA/VA type financing, and a reverse mortgage is a loan to a senior homeowner against home equity, not a purchase loan from the seller.

The idea being tested is seller financing, where the seller provides the loan for the buyer to purchase the property. In this setup, the buyer signs a promissory note for the financed amount and the deed (or mortgage) is placed on the property as collateral. Because the loan is secured by the property, the seller has the same remedies as any lender—if the buyer defaults, the seller can foreclose and recover the property. Terms are negotiated directly between buyer and seller, including down payment, interest rate, and how the loan is repaid. This option is often used when a buyer can’t obtain traditional bank financing or when a seller wants to facilitate a sale and possibly earn interest.

The other scenarios describe different lending sources or structures: a conventional bank loan involves a lender other than the seller, a government-insured mortgage refers to FHA/VA type financing, and a reverse mortgage is a loan to a senior homeowner against home equity, not a purchase loan from the seller.