In Texas, a purchase money mortgage is given:
Audio Lesson
Duration: 2:16
Question & Answer
Review the question and all answer choices
By the bank to the buyer
A is incorrect because a bank providing a mortgage to a buyer describes a conventional loan, not a purchase money mortgage. Purchase money mortgages involve seller financing, not institutional lending.
By the seller to finance part of the purchase
By the buyer to the seller
C is incorrect because while the buyer gives a note to the seller, the mortgage (security instrument) is given by the seller to finance the purchase, not by the buyer to the seller.
By a third-party lender
D is incorrect because a third-party lender providing financing describes a conventional mortgage, not a purchase money mortgage which is specifically seller financing.
Why is this correct?
B is correct because a purchase money mortgage is specifically when the seller finances part of the purchase by taking back a note secured by the property. This is a form of seller financing where the seller acts as the lender.
Deep Analysis
AI-powered in-depth explanation of this concept
Understanding purchase money mortgages is crucial for real estate professionals in Texas as they represent a common financing alternative when traditional lending isn't available or desirable. This question tests your knowledge of who provides purchase money mortgages in Texas. The core concept is that purchase money mortgages are a form of seller financing where the seller extends credit to the buyer. To answer correctly, you need to recognize that option A describes a conventional loan, not seller financing. Option C reverses the parties involved, while option D describes a traditional third-party lender. What makes this question potentially tricky is that students often confuse who is providing the mortgage in seller financing transactions. This concept connects to broader real estate knowledge about financing options, closing procedures, and the different ways transactions can be structured.
Knowledge Background
Essential context and foundational knowledge
A purchase money mortgage is a security interest in real estate acquired by a lender, typically a seller, to finance the acquisition of the property. In Texas, seller financing is a common alternative when buyers have difficulty qualifying for traditional mortgages. The purchase money mortgage is created simultaneously with the transfer of title, making it a primary lien on the property. This type of financing often includes higher interest rates and may require a balloon payment. Texas law regulates these transactions to ensure proper disclosures and protect both parties' interests.
Think of purchase money mortgage like 'layaway' at a store - the seller lets you take the property now but holds the title until you've paid in full, with the property itself as security.
When you see 'purchase money mortgage' on the exam, visualize the seller as the store holding the item until payment is complete.
Remember that purchase money mortgages always involve seller financing - the seller is providing the mortgage to the buyer as part of the purchase transaction.
Real World Application
How this concept applies in actual real estate practice
A buyer finds their dream home but has some credit issues that prevent traditional bank financing. The seller, motivated to sell quickly, agrees to provide financing. They execute a purchase money mortgage where the buyer signs a promissory note payable to the seller, and the seller takes back a mortgage secured by the property as collateral. This allows the buyer to immediately occupy the property while making payments directly to the seller, who continues to hold legal title until the note is paid in full.
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