Real Estate Financing and Settlement
Instruments and loan math
A mortgage or deed of trust pledges real property as security for a note; the borrower gives a promissory note (the promise to pay) and hypothecates title. Key numbers: loan-to-value ratio = loan ÷ appraised value or price, whichever is lower; PITI combines principal, interest, taxes, and insurance; discount points are prepaid interest paid to lower the rate, while origination fees are lender charges. Conventional, FHA, VA, and USDA programs differ in down payment, mortgage insurance, and underwriting. Amortization means the payment is fixed while the interest share falls over time.
Settlement and consumer rules
TRID/Loan Estimate and Closing Disclosure rules require the Loan Estimate within three business days of application and the Closing Disclosure at least three business days before consummation. RESPA Section 8 prohibits fees for referrals of settlement service business. ECOA/Regulation B bars discrimination in credit, and the ability-to-repay and qualified mortgage rules constrain risky lending. Flood insurance is required on federally related loans on improved property in special flood hazard areas. Owner's and lender's title policies protect different parties; a lender's policy does not protect the buyer's equity.
Traps
APR includes fees and is not the note rate. In Delaware, foreclosure generally proceeds through court action, so timelines differ from nonjudicial states. A due-on-sale clause can be triggered by a transfer of title, and wraparound or seller financing must be drafted carefully.
Worked example
A $300,000 purchase with 10% down gives a $270,000 loan and 90% LTV, so mortgage insurance applies. At a factor of 6.32 per $1,000 for 30 years at 6.5%, principal and interest is roughly $1,706 per month.