A seller wants $120,000 for his home, and still owes $20,000 of his original loan at 7%. What kind of mortgage loan includes the seller's existing mortgage and additional funds borrowed?

The correct answer is a wraparound mortgage. This type of mortgage allows a buyer to assume the seller's existing mortgage while also borrowing additional funds. In this scenario, the seller still owes $20,000 on their original loan, and by using a wraparound mortgage, they can facilitate the sale of the home for the desired amount of $120,000.

A wraparound mortgage essentially wraps the existing loan into a new mortgage that the buyer will pay, which includes the amount owed on the existing mortgage plus any additional funds required for the purchase. This allows the seller to receive payments based on the full purchase price while maintaining the existing loan in place.

The other types of mortgages mentioned do not fit this specific circumstance. A blanket mortgage involves multiple properties under a single loan, an equity mortgage is typically based on the equity that the owner has in a property, and a buy-down reduces the interest rate for the borrower through upfront payments but doesn't involve adding existing loans to a new one. Thus, the wraparound mortgage is the most suitable choice for the described situation.