California Real Estate Practice Exam

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What financial concept is being used when a person puts down $40,000 in cash and borrows $160,000 to buy a $200,000 home?

Savings
Leverage
Equity
Mortgaging

The correct answer is: Leverage

A person is using leverage when they put down $40,000 in cash and borrow $160,000 to buy a $200,000 home. Leverage refers to the use of borrowed money or debt to finance an investment or purchase. In this case, the individual is using a combination of their own funds and borrowed funds to purchase the home. Option A (Savings) is incorrect because while the person is using their own money in the form of a down payment, the rest of the funds are being borrowed. Option C (Equity) is incorrect because equity refers to the portion of an asset that a person owns outright, without any debt or borrowing. Option D (Mortgaging) is incorrect, as it is not a financial concept, but rather a verb describing the action of obtaining a mortgage loan.