Types of mortgages and sources of financing in Florida
Last reviewed: November 2026
Types of mortgages and sources of financing make up exam area XIII, 4% of the Florida sales associate exam. Most of the area is definitions: which loan leaves a large final payment, who buys loans on the secondary market, and what a Florida mortgage actually gives the lender. This page covers each one, along with the Florida statutes behind lien theory and foreclosure. For FHA, VA, PMI and qualifying ratios, see residential mortgages.
Primary vs secondary mortgage market
In the primary market, lenders such as banks, credit unions and mortgage companies make loans to borrowers. In the secondary market, existing loans or securities backed by them are bought and sold. Selling loans gives lenders cash to make new ones.
| Organization | What it does |
|---|---|
| Fannie Mae | Buys mortgages from lenders and either holds them or packages them into mortgage-backed securities (MBS). A shareholder-owned company under a congressional charter, first chartered in 1938 (FHFA) |
| Freddie Mac | Same role: buys mortgages and holds or securitizes them. Chartered by Congress in 1970; shareholder-owned (FHFA) |
| Ginnie Mae (GNMA) | Guarantees timely payment of principal and interest on securities issued by approved issuers and backed by pools of government-insured or guaranteed loans, such as FHA and VA loans. The full faith and credit of the United States stands behind the guaranty (12 U.S.C. 1721(g)) |
The key contrast for the exam: Fannie Mae and Freddie Mac buy loans. Under Ginnie Mae's guaranty, an approved issuer pools government-insured or guaranteed loans and issues the securities. Ginnie Mae guarantees those securities; it is not the buyer of the loans.
Types of mortgages
| Type | What makes it different |
|---|---|
| Purchase money mortgage | The loan is used to buy the property it secures. A common form is seller financing: the seller takes back a mortgage instead of cash for part of the price |
| Wraparound | The seller's existing loan stays in place. The buyer gives the seller a larger new mortgage that "wraps" the old one. The seller collects from the buyer and keeps paying the original lender |
| Balloon | Payments do not fully pay off the loan, which leaves a large final payment. Terms are often 5 to 10 years (CFPB) |
| Adjustable-rate (ARM) | The rate changes at set intervals: index + margin, subject to any caps (CFPB) |
| Reverse (HECM) | For owners 62 and older. No monthly payments; the balance grows and is repaid when the borrower no longer lives in the home (CFPB, HUD) |
| Fully amortized | Equal payments retire the whole debt by the end of the term |
Purchase money mortgage
A seller asks $400,000. The buyer gets a $300,000 bank loan, pays $40,000 down, and the seller carries the last $60,000 as a purchase money second mortgage. The seller is now a lender, and the note is secured by the property being sold.
ARM math
Fully indexed rate = index + margin. With an index of 4.25% and a margin of 2.75%, the rate is 7.00%. The margin is set by the lender and does not change after closing; the index moves with the market. The new rate is subject to any rate caps in the loan (CFPB).
Reverse mortgage
With a reverse mortgage, the owner keeps title, still pays property taxes and insurance, and must use the home as a principal residence. Interest and fees are added each month, so the debt rises and the equity falls. Most reverse mortgages can be cancelled within three business days after closing, the right of rescission (CFPB).
Florida is a lien theory state
"A mortgage shall be held to be a specific lien on the property therein described, and not a conveyance of the legal title or of the right of possession" (s. 697.02, F.S.). The borrower (mortgagor) keeps title and possession. The lender (mortgagee) holds a lien. In a title theory state, the lender holds legal title until the loan is paid.
Mortgage clauses to know: the acceleration clause lets the lender call the whole balance due on default. The defeasance clause releases the lien when the loan is paid. The due-on-sale (alienation) clause lets the lender demand payment if the property is sold. A subordination clause lets a later loan take priority.
Foreclosure basics in Florida
- Judicial only. "All mortgages shall be foreclosed in equity" (s. 702.01, F.S.), meaning through a court case. The foreclosure claim is tried to the judge, without a jury.
- Right of redemption. The borrower, or anyone holding a junior interest, may pay the amount in the judgment and stop the sale. That right ends when the clerk files the certificate of sale, or at a later time if the judgment sets one. After that there is no right of redemption (s. 45.0315, F.S.).
- Deficiency. If the sale does not cover the debt, the court may enter a deficiency judgment. For owner-occupied residential property, the deficiency may not exceed the judgment amount minus the property's fair market value on the date of sale (s. 702.06, F.S.).
Exam traps
- Ginnie Mae guarantees securities; Fannie Mae and Freddie Mac buy loans.
- Florida: lien theory and judicial foreclosure. The lender does not hold title.
- A balloon loan does not fully amortize. A reverse mortgage balance goes up, not down.
- A purchase money mortgage given to the seller means the seller is financing part of the price.
- The ARM margin stays fixed; the index moves.
Practice question
Which statement about the secondary mortgage market is correct?
A) Ginnie Mae buys conventional loans from lenders. B) Fannie Mae makes loans directly to homebuyers. C) Ginnie Mae guarantees securities backed by pools of government-insured or guaranteed loans. D) Freddie Mac insures FHA loans.
Answer: C. Ginnie Mae guarantees timely payment on securities backed by loans such as FHA and VA loans (12 U.S.C. 1721(g)). Fannie Mae and Freddie Mac buy loans from lenders; they do not lend to buyers. FHA, not Freddie Mac, insures FHA loans.
Test yourself
The free Florida practice test has questions on the secondary market, balloon loans, mortgage theory and the acceleration clause, each with an explanation. More area XII–XIII questions and timed exams are in the paid question bank.
Sources: ss. 45.0315, 697.02, 702.01, 702.06, F.S.; 12 U.S.C. 1721(g); FHFA "About Fannie Mae & Freddie Mac"; CFPB answers on ARMs, balloon payments and reverse mortgages; HUD "Loans". Real Estate Drill is an independent study tool, not legal or lending advice. We are not affiliated with FREC, DBPR, Pearson VUE, FHFA, HUD, Fannie Mae, Freddie Mac or Ginnie Mae.