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Real Estate Salesperson Exam (National Portion): Financing and Settlement Concepts

Importance ★★★★☆ · 100% (estimate)

Overview

This chapter covers how home loans work, the federal rules that protect borrowers, and how a sale is settled.

The promissory note is the promise to repay, and the mortgage or deed of trust pledges the property as security. The borrower is the mortgagor and the lender the mortgagee. A due-on-sale clause lets the lender call the loan when the property is sold, and an acceleration clause makes the debt due on default. In lien theory states the borrower keeps title; in title theory states the lender or a trustee holds it. Fannie Mae and Freddie Mac buy loans in the secondary market.

Conventional loans above 80% loan-to-value usually need private mortgage insurance. FHA loans are insured and VA loans are guaranteed. Under TRID, the Loan Estimate is due within 3 business days after application and the Closing Disclosure at least 3 business days before closing. RESPA bans kickbacks for referrals of settlement services. Under Regulation Z, a trigger term such as a down payment amount in an ad requires full disclosure including the APR. ECOA bars credit discrimination, including by marital status and age.

Key concepts

  • Promissory note

    The borrower's written promise to repay the loan.

    Memory tipNote = promise; mortgage = security

  • Due-on-sale clause

    A clause that lets the lender demand the full balance when the property is sold or transferred.

    Memory tipAlso called an alienation clause

  • Secondary market

    Investors such as Fannie Mae and Freddie Mac that buy loans from lenders.

    Memory tipPrimary market makes loans

  • PMI

    Private mortgage insurance protecting the lender, usually required on conventional loans above 80% LTV.

    Memory tipLess than 20% down

  • TRID

    Federal rule requiring the Loan Estimate within 3 business days after application and the Closing Disclosure at least 3 business days before closing.

    Memory tip3 days before closing

    Source: CFPB TRID rule (12 CFR 1026) · as of 2026

  • RESPA kickbacks

    RESPA bans fees or anything of value given for referring settlement services on federally related loans.

    Memory tipNo referral fees

    Source: RESPA Section 8 (12 U.S.C. 2607) · as of 2026

  • Land contract

    Seller financing in which the seller keeps legal title until paid and the buyer has possession and equitable title.

    Memory tipAlso called contract for deed

Often tested

  • VA loans are guaranteed; FHA loans are insured.
  • Trigger terms in ads require the down payment, repayment terms, and APR.
  • ECOA protects marital status and age.

3 sample questions

Verified practice questions from this unit.

Practice questionReviewedFinancing and Settlement › Financing and Settlement★★★★☆

Question 1. In a mortgage loan, the borrower is the:

  1. ① Trustee
  2. ② Mortgagor
  3. ③ Mortgagee
  4. ④ Beneficiary
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ② Mortgagor

Key point: Mortgagor = borrower; mortgagee = lender

The borrower gives the mortgage, so the borrower is the mortgagor. The lender receives it and is the mortgagee. With a deed of trust, the borrower is the trustor, the lender is the beneficiary, and a third party is the trustee.

Wrong choices

  • Mortgagee: The mortgagee is the lender.
  • Trustee: A trustee holds title under a deed of trust.
  • Beneficiary: The beneficiary is the lender under a deed of trust.
Practice questionReviewedFinancing and Settlement › Financing and Settlement★★★★☆

Question 2. On a conventional loan, private mortgage insurance (PMI) is usually required when the loan-to-value ratio is:

  1. ① Exactly 60%
  2. ② More than 80%
  3. ③ Less than 50%
  4. ④ Less than 80%
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ② More than 80%

Key point: Conventional loan > 80% LTV → PMI

Private mortgage insurance (PMI) protects the lender. It is usually required on a conventional loan when the borrower puts down less than 20%, so the LTV is above 80%.

Wrong choices

  • Less than 50%: Low LTV loans do not normally need PMI.
  • Exactly 60%: 60% LTV does not normally need PMI.
  • Less than 80%: PMI is required when the LTV is above 80%, not below.
Practice questionReviewedFinancing and Settlement › Financing and Settlement★★★★☆

Question 3. Under the TILA-RESPA Integrated Disclosure (TRID) rule, when must the borrower receive the Closing Disclosure?

  1. ① Within 3 business days after closing
  2. ② On the day of closing only
  3. ③ At least 10 days before applying for the loan
  4. ④ At least 3 business days before consummation (closing)
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ④ At least 3 business days before consummation (closing)

Key point: Closing Disclosure: 3 business days before closing

Under TRID, the lender gives the Loan Estimate within 3 business days after application, and the borrower must receive the Closing Disclosure at least 3 business days before closing.

Wrong choices

  • At least 10 days before applying for the loan: The Closing Disclosure is given near closing, not before applying.
  • Within 3 business days after closing: It must be given before closing.
  • On the day of closing only: Same-day delivery is too late.
Practice 5 questions from this unit →

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