Financing, Mortgages, and Settlement
Loan Types and Terms
Understand the mortgage/note distinction: the note is the promise to pay, the deed of trust is the security instrument. Arizona commonly uses deeds of trust with a trustee and power of sale. Know the loan types (conventional, FHA, VA, USDA), fixed versus adjustable rates, amortization, points, and the components of the monthly payment (principal, interest, taxes, insurance). Understand qualifying ratios and how down payment and reserves affect approval.
Settlement and Disclosures
Learn the closing process, the role of escrow and title companies, and the settlement statement. Know the disclosure rules that apply to residential lending, including the Loan Estimate and Closing Disclosure timing, and the prohibition on certain practices. Understand proration of taxes and rents, and how debits and credits are allocated between buyer and seller.
Traps
Common traps: confusing the note with the security instrument; forgetting that a deed of trust allows nonjudicial foreclosure; and miscalculating prorations by charging the wrong party. Another trap is assuming the closing disclosure can change at closing without a waiting period.
Worked Example
A seller has prepaid property taxes for the year and closes mid-year. Rule of thumb: the seller is credited for the unused portion the buyer will benefit from, and the buyer is debited; prorations are computed on a per-diem basis for the days each party owns the property.