PSI Virginia Real Estate Practice Exam

Which of the following is NOT considered a financing instrument?

1. Deed of trust

2. Real property sales contract

3. Equity release

4. Note and mortgage

The correct answer is: Equity release

The correct answer is equity release because it does not function as a financing instrument in the same way that the other options do. To provide clarity, financing instruments are tools or documents that facilitate the process of borrowing money for real estate transactions. A deed of trust is a security instrument used in place of a mortgage in many states, establishing a lien against the property to secure the loan for the borrower. A real property sales contract typically includes the terms under which a property will be sold, usually involving financing arrangements, and can serve as a promise to pay. Meanwhile, a note and mortgage combines both elements of borrowing—the note represents the borrower’s promise to repay the loan, while the mortgage secures the loan against the property. Equity release, on the other hand, refers to a financial mechanism that allows homeowners to access the equity built up in their homes, often used in retirement planning. This process is not a direct financing instrument like the others listed; instead, it is a way to leverage the value of the home, and is typically used in the context of accessing funds rather than securing a loan for purchasing property.