Cheat Sheet
Financing & Lending
Loan types, key ratios, discount points, federal lending laws, and mortgage instruments. Master these financing concepts to pass the real estate exam.
Exam Tips
- Know the differences between FHA, VA, USDA, and Conventional loans
- TRID timing rules are heavily tested: 3 days for Loan Estimate, 3 days for Closing Disclosure
- Right of rescission applies to refinances only, NOT purchase loans
- Remember: promissory note = debt, mortgage/deed of trust = security (lien)
1Loan Types
Conventional
- Not government-backed
- 620+ credit score typically required
- 3-20% down payment
- PMI required if down payment < 20%
- Fixed or adjustable rate available
FHA (Federal Housing Administration)
- Government-insured (FHA)
- 580+ credit score for 3.5% down payment
- 500+ credit score requires 10% down payment
- MIP required (upfront + annual mortgage insurance premium)
- Maximum loan limits per county
VA (Veterans Affairs)
- For veterans and active-duty military
- 0% down payment
- No PMI required
- Funding fee required
- Certificate of Eligibility (COE) needed
USDA (U.S. Department of Agriculture)
- For rural areas only
- 0% down payment
- Income limits apply
- Guarantee fee required
- Property must be in eligible area
Jumbo
- Exceeds conforming loan limits ($766,550 in 2024)
- Stricter underwriting requirements
- Higher interest rates
- 10-20% down payment typical
- Higher credit score and reserves required
2Key Ratios
LTV (Loan-to-Value)
- Formula: Loan Amount / Property Value x 100
- Above 80% LTV = PMI required
- Lower LTV = less risk for lender
- Example: $240,000 / $300,000 = 80% LTV
DTI (Debt-to-Income)
- Formula: Total Monthly Debts / Gross Monthly Income x 100
- Front-end ratio (housing only): max 28%
- Back-end ratio (all debts): max 36-43%
- Lower DTI = stronger borrower qualification
PMI (Private Mortgage Insurance)
- Required when LTV > 80%
- Costs 0.5-1% of loan amount annually
- Can be removed at 80% LTV (borrower request)
- Automatic termination at 78% LTV
3Points & Buydowns
Discount Points
- 1 point = 1% of loan amount
- Paid at closing to reduce interest rate
- Each point typically reduces rate by 0.25%
- Tax-deductible in year paid
- Example: 2 points on $200,000 loan = $4,000
Origination Points
- Fee charged by lender for processing the loan
- Usually 0.5-1% of loan amount
- Negotiable between borrower and lender
Buydowns
- Temporary: 2-1 buydown = 2% lower year 1, 1% lower year 2, full rate year 3
- Permanent: pay points to lower rate for full term
- Seller or builder may pay for buydowns as concession
4TRID / TILA / RESPA (Federal Lending Laws)
TILA (Truth in Lending Act)
- Requires APR disclosure to borrowers
- Right of rescission: 3 business days for refinances (NOT purchases)
- Implemented by Regulation Z
- Applies to consumer loans
RESPA (Real Estate Settlement Procedures Act)
- Prohibits kickbacks and referral fees
- Requires Closing Disclosure
- Limits escrow deposits
- Applies to federally related mortgage loans
TRID (TILA-RESPA Integrated Disclosure)
- Loan Estimate: must be provided within 3 business days of application
- Closing Disclosure: must be received at least 3 business days before closing
- Replaced the Good Faith Estimate (GFE) and HUD-1 Settlement Statement
ECOA (Equal Credit Opportunity Act)
- Prohibits credit discrimination
- Protected: race, color, religion, national origin, sex, marital status, age, public assistance
- Implemented by Regulation B
HMDA (Home Mortgage Disclosure Act)
- Requires lenders to report lending data
- Used to detect discriminatory lending patterns
- Helps enforce fair lending laws
5Mortgage Instruments
Promissory Note
- The borrower's promise to repay the debt
- Contains: loan amount, interest rate, payment schedule, default provisions
- Personal obligation (in personam)
- Creates the debt, not the lien
Mortgage (Lien Theory)
- Borrower retains title; lender holds a lien
- Judicial foreclosure required (court process)
- Used in most states
- Two parties: mortgagor (borrower), mortgagee (lender)
Deed of Trust (Title Theory)
- Title held by neutral third-party trustee
- Non-judicial foreclosure allowed (power of sale)
- Three parties: trustor (borrower), beneficiary (lender), trustee
- Faster foreclosure process than mortgage
Assignment of Mortgage
- Transfer of mortgage from one lender to another
- Borrower may not need to consent
- Loan terms generally remain the same
Acceleration Clause
- Allows lender to demand full payment if borrower defaults
- Makes entire loan balance due immediately
- Standard clause in most mortgages
Due-on-Sale Clause (Alienation Clause)
- Loan must be paid in full when property is sold or transferred
- Prevents loan assumption without lender approval
- Also called alienation clause
Deficiency Judgment
- Court order to pay difference if foreclosure sale price < loan balance
- Not available in all states
- Borrower remains personally liable for shortfall
Master Financing Questions
Financing and lending is one of the most tested topics on the real estate exam. Practice now.
Start PracticingLast reviewed September 8, 2026 by the EstatePass editorial team. Formulas and program limits are checked against the published rules; figures on this page are arithmetic, not market statistics.
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