Mortgage Loan Originator (MLO) Licensing Practice Test

What is a seller carry-back loan?

1. A loan provided entirely by the bank

2. A loan where the buyer finances through various lenders

3. A transaction in which the seller provides most or all of the financing

4. A loan backed by government guarantees

The correct answer is: A transaction in which the seller provides most or all of the financing

A seller carry-back loan is a financing arrangement where the seller of a property provides a loan to the buyer, allowing the buyer to purchase the property without relying solely on traditional lending sources such as banks or credit unions. In this scenario, the seller essentially takes on the role of the lender for part or all of the purchase price. This can be particularly beneficial in situations where the buyer may have difficulty obtaining financing due to credit issues or other factors. The reason this option is the correct choice lies in the fundamental mechanics of such transactions. By offering financing, the seller can facilitate the sale of the property while also potentially receiving a steady income stream from the interest on the loan. This arrangement can make the property more attractive to buyers, especially in a market where obtaining conventional loans may be challenging. In contrast, the other choices illustrate alternative financing scenarios: a loan provided entirely by the bank does not involve the seller at all; a loan where the buyer finances through various lenders implies multiple financing sources without seller involvement; and a loan backed by government guarantees typically refers to specific lending programs, such as FHA or VA loans, which again do not involve a seller's direct financing role.