Finance
In Michigan, a 'purchase money mortgage' is created when:
AA buyer uses their savings to pay cash for a property
BThe seller provides financing to the buyer to complete the purchase✓ Correct
CA buyer refinances an existing mortgage
DA lender provides a construction loan for a new home
Explanation
A purchase money mortgage is one given to the seller (or a third-party lender) as partial payment of the purchase price for the property. Seller-financed purchase money mortgages are a form of owner financing.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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