In Colorado real estate accounting, loans are a credit to which party?

• A. Buyer
• B. Lender
• C. Broker
• D. Seller

Answer: (A)

The main idea is how financing affects the buyer’s cash at closing. When the buyer obtains a loan, the loan proceeds are treated as money coming to the buyer toward the purchase. On the buyer’s closing statement, these loan funds are recorded as a credit, because they reduce the amount the buyer has to bring to closing. In other words, the buyer is receiving financing, so it decreases the buyer’s out-of-pocket cost at closing. The lender’s side would show the disbursement of funds (a debit to the lender), while the seller’s figures reflect the purchase price and how financing affects the buyer’s net at closing. So the loan is a credit to the buyer because it provides funds toward the purchase and lowers the buyer’s cash requirement at closing.