Maryland Home Improvement PSI Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Maryland Home Improvement Test. Study using flashcards and multiple-choice questions, each with hints and explanations. Get ready to excel on your exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

The buyer is assuming a mortgage presently on the property in the amount of $110,000. What is the adjustment made at closing?

Credit buyer $110,000; debit seller $110,000.
Credit seller $110,000; debit buyer $110,000.
Credit buyer $110,000; no adjustment to seller.
Credit seller $110,000; no adjustment to buyer.

The correct answer is: Credit buyer $110,000; debit seller $110,000.

When a buyer assumes an existing mortgage, it means that they are taking over the responsibility for the existing loan that is currently secured by the property. In this case, the mortgage amount of $110,000 will impact how the transaction is recorded on the closing statement. The proper adjustment at closing reflects that the seller no longer has the mortgage liability, and thus, they are credited for the amount of the mortgage, which is $110,000. Conversely, since the buyer is assuming the mortgage, this amount is debited to them, indicating that they are now responsible for this loan. Therefore, the adjustment is made to show that the mortgage amount effectively transfers from the seller to the buyer. This accounting gives a clear representation of the financial implications of the mortgage assumption, ensuring that both parties' obligations are recorded accurately in the transaction. This leads to the correct recording of a credit to the seller for $110,000, as they relinquish the mortgage responsibility, and a debit to the buyer for the same amount, reflecting the new obligation they are taking on.