Which term best describes the purpose of a 125% piggyback loan?

Which term best describes the purpose of a 125% piggyback loan?

• A. A secondary loan to cover part of the down payment
• B. A loan that is always insured separately
• C. A loan restricted to investment properties
• D. A loan with no down payment requirement

Answer: (A)

The main idea being tested is how a piggyback loan works. A 125% piggyback loan uses a second mortgage in addition to the primary loan, with the second loan specifically serving to cover part of the down payment (and sometimes closing costs). In this setup, the borrower arranges two loans that together total 125% of the purchase price, and the second loan is the vehicle that provides the cash portion used as the down payment. That’s why this option best describes the purpose: the secondary loan is there to finance part of the down payment rather than to insure separately, apply only to investment properties, or imply there’s no down payment at all.

The main idea being tested is how a piggyback loan works. A 125% piggyback loan uses a second mortgage in addition to the primary loan, with the second loan specifically serving to cover part of the down payment (and sometimes closing costs). In this setup, the borrower arranges two loans that together total 125% of the purchase price, and the second loan is the vehicle that provides the cash portion used as the down payment. That’s why this option best describes the purpose: the secondary loan is there to finance part of the down payment rather than to insure separately, apply only to investment properties, or imply there’s no down payment at all.