What defines a first mortgage?

A first mortgage is defined as a primary loan secured by a property that holds the highest priority over any other liens or encumbrances on that property. This means that in the event of a default or foreclosure, the lender who holds the first mortgage has the first claim to the proceeds from the sale of the property. This status is crucial because it reduces the risk for lenders, who are more likely to extend loans when they have the security of being in the first position, ensuring they can recover their investment before other creditors.

In contrast, the other options outline different types of loans or scenarios that do not fit the definition of a first mortgage. A government-backed loan specifically for veterans refers to VA loans, which are a distinct category of loans with specific benefits for eligible veterans. A loan that can be used solely for investment properties describes investment property financing but does not qualify as a first mortgage based on the ownership status or lien priority. Finally, a second mortgage is a separate loan taken out against a property that already has an existing primary mortgage. This type of loan is subordinate to the first mortgage, meaning it is lower in priority, which is contrary to the definition of a first mortgage.