California Real Estate Practice Exam

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When a buyer wishes to purchase a home with a down payment and an FHA insured loan, what should the broker advise regarding the 2nd note and trust deed?

A transaction is okay
Buyer cannot purchase in this manner as FHA requires cash
Seller should not record the 2nd trust deed until after escrow
None of the above

The correct answer is: A transaction is okay

In transactions involving FHA-insured loans, it is permissible for buyers to finance a portion of the purchase through secondary financing, such as a second note and trust deed. This form of financing is often a strategy for buyers who may have limited cash resources for down payments or other upfront costs. FHA guidelines allow for this type of arrangement as long as the total financing does not exceed the appraised value of the property, which means that utilizing a second trust deed can help facilitate the purchase of a home even when a buyer opts for an FHA loan. The other options do not align with these FHA guidelines. The assertion that a buyer cannot purchase in this manner due to the requirement for cash contradicts FHA policy, which does allow secondary financing. The suggestion that a seller should wait to record the second trust deed until after escrow does not reflect a necessary procedure related to FHA transactions and could complicate the legal standing of the loan. Hence, the allowance of a second note and trust deed makes the transaction feasible and beneficial for both the buyer and the seller.