Which of the following is the best example of a loan that is subordinate to a first mortgage?

A Home Equity Line of Credit (HELOC) is an excellent example of a loan that is subordinate to a first mortgage. In real estate financing, a first mortgage is the primary loan taken out to purchase a property, and any loans that follow are considered subordinate. A HELOC allows homeowners to borrow against the equity accumulated in their home, but it ranks behind the first mortgage in terms of repayment priority. This means that in the event of foreclosure, the first mortgage lender would be paid off before the HELOC lender, making the HELOC a subordinate loan.

In comparison, both VA and FHA loans are not subordinate; instead, they can serve as first mortgages themselves. They are government-backed loans that help borrowers with specific eligibility criteria secure financing for purchasing homes, and they always take priority over any subsequent loans or lines of credit. This hierarchical structure in mortgage obligations is critical for understanding how different types of loans interact within real estate finance.