Mortgage Loan Originator (MLO) Licensing Practice Test

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What does a Purchase Money Mortgage facilitate?

  1. A buyer borrowing from a seller to purchase a home

  2. A buyer borrowing only from a lender to purchase a home

  3. A buyer obtaining a loan solely from a private investor

  4. A buyer refinancing an existing home mortgage

The correct answer is: A buyer borrowing from a seller to purchase a home

A Purchase Money Mortgage specifically refers to a situation where the buyer borrows directly from the seller to finance the purchase of a property. This arrangement allows the seller to act as the lender, providing financing to the buyer when they are unable or unwilling to secure conventional financing through traditional lenders. This type of mortgage is useful in situations where a buyer might have a lower credit score, insufficient liquidity for a large down payment, or where traditional financing is difficult to obtain. In this context, the purchase money mortgage is often structured as part of the sales agreement between the buyer and seller, allowing for flexibility in terms and potentially faster transactions. This contrasts with other options, such as borrowing only from a lender or a private investor, which would not involve any seller financing elements. Additionally, refinancing an existing home mortgage does not apply here since a purchase money mortgage is about financing the initial purchase rather than altering the terms of an existing loan.