PSI New Jersey Real Estate State Practice Exam

Which financing arrangement allows a seller to retain title until the loan is paid off?

1. Conventional mortgage

2. Lease option

3. Land contract

4. Second mortgage

The correct answer is: Land contract

A land contract is a specific type of financing arrangement wherein the seller provides seller financing to the buyer while retaining the title to the property until the buyer has fulfilled the payment obligations outlined in the contract. This means that the buyer makes payments directly to the seller over time instead of securing traditional financing through a bank or mortgage lender. The seller remains the legal owner of the property during this period, which also allows them to maintain certain rights, such as the ability to reclaim the property if the buyer defaults on payments. This arrangement is particularly beneficial in situations where buyers may not qualify for conventional financing due to credit issues or other factors. It provides a way for sellers to facilitate property sales while protecting their interests by retaining title until full payment is made. Understanding this structure is crucial for both buyers and sellers engaged in real estate transactions, especially in markets where traditional financing may be less accessible.