Washington 60-Hour Fundamentals – Valuation, Financing, and Lending Practice Exam

The correct answer, a home equity loan, is considered equity-related financing because it is secured by the homeowner's equity in their property. Home equity represents the difference between the market value of a home and the outstanding mortgage balance. When a homeowner has built up equity, they can borrow against that equity, which is what a home equity loan allows them to do. This type of financing taps into the value that has been accumulated in the property over time, making it a key example of equity-based financing.

In contrast, a conventional mortgage is primarily a loan taken to purchase a property, typically based on the property's full market value rather than on the equity accrued. Government-insured loans also focus on purchasing a property and do not represent a borrowing against existing equity. Fixed-rate loans simply refer to the interest rate structure of the loan rather than the type of collateral or the nature of the borrowing, and they can apply to both purchasing and refinancing scenarios. Therefore, the home equity loan distinctly exemplifies financing that is tied to the accumulated equity in a property.