Other mortgage structures and creative financing
Beyond the basic loan programs, the exam tests a set of loan structures. Most questions describe a situation and ask you to name it, so focus on the one feature that identifies each.
Package mortgage
A package mortgage covers personal property as well as the real estate, such as kitchen appliances or furniture sold with a condominium. Without it, the lender would need a separate security agreement for the personal property.
Blanket mortgage
A blanket mortgage covers two or more parcels with one mortgage. Developers use it to finance a whole subdivision. It usually contains a partial release clause (Unit 12), so individual lots can be released and sold as the loan is paid down.
Construction loan
The CFPB describes a construction loan as a short-term loan to cover the cost of building or rehabilitating a home. The money is released in a series of advances (draws) as the work progresses rather than in one lump sum. When construction ends, the borrower may convert it to, or replace it with, a permanent mortgage (a "takeout" loan).
Open-end mortgage
An open-end mortgage lets the lender advance more money later under the same mortgage, up to a stated maximum, without a new mortgage. Florida law supports this. Under Fla. Stat. 697.04(1)(a), a mortgage may secure future advances, whether obligatory or at the lender's option, made within 20 years from the date of the mortgage, and they are treated as if made when the mortgage was signed. Under 697.04(1)(b), the total unpaid balance secured at any one time cannot exceed the maximum principal amount stated in the mortgage, plus interest.
Purchase-money mortgage and seller financing
A purchase-money mortgage is a mortgage that a buyer gives to the seller as part of the purchase. The seller accepts it in place of some or all of the cash price, often alongside a bank loan and a cash down payment. The rate and payment schedule are whatever the parties negotiate.
This is the most common form of seller financing. The seller "carries back" part of the price, which helps a buyer who cannot borrow the whole amount from a lender.
Wraparound mortgage
A wraparound is a seller-financing technique used when the property already has a mortgage. The buyer signs a new, larger note to the seller that "wraps around" the existing loan. The buyer pays the seller; the seller keeps paying the original lender and keeps the difference. The existing loan stays in place, so check for a due-on-sale clause (Unit 12): if the underlying loan has one, the lender may be able to call it due.
Reverse mortgage (HECM)
A reverse mortgage lets an older homeowner turn home equity into cash. The only reverse mortgage insured by the federal government is the FHA Home Equity Conversion Mortgage (HECM), available through FHA-approved lenders.
| Rule | Source |
|---|---|
| Youngest borrower must be 62 or older at closing | 24 CFR 206.33 |
| Home must be the borrower's principal residence | 24 CFR 206.39 |
| Borrower must receive HUD-approved counseling first | 24 CFR 206.41 |
| No monthly principal and interest payments; repayment is deferred until the loan becomes due | 24 CFR 206.19(g) |
| Loan becomes due when the last borrower dies or the home is no longer a borrower's principal residence, among other events | 24 CFR 206.27(c) |
| Borrower is not personally liable; the lender is repaid from the property | 24 CFR 206.27(c)(8) |
Because no payments are made, the loan balance grows over time as interest and charges are added, the reverse of a normal amortizing loan.