Real Estate Finance, Mortgages, and Settlement
Instruments and theory
A real estate loan has two documents: the promissory note (the promise to pay) and the security instrument. Missouri is a lien-theory state and typically uses a deed of trust with a trustee who can conduct a nonjudicial foreclosure sale. The borrower keeps title; the lender holds a lien. Know hypothecation (pledging property without giving up possession), acceleration, due-on-sale, and prepayment terms.
Numbers to know
Payment is PITI - principal, interest, taxes, insurance. Interest is paid in arrears; early payments are mostly interest. LTV = loan ÷ value; a lower down payment raises LTV and often triggers mortgage insurance. On conventional loans, the borrower may request PMI cancellation at 80% of original value and it terminates automatically at 78%. Points are prepaid interest: one point = 1% of the loan amount. APR wraps fees into the rate for comparison.
Loan types and rules
Conventional, FHA, VA, and USDA programs differ in down payment, insurance, and qualifying ratios. Federal disclosure rules matter: the Loan Estimate goes out within three business days of application, and the Closing Disclosure must be received three business days before consummation. RESPA prohibits kickbacks and unearned fees for settlement services; ECOA bars discrimination in credit; flood rules require insurance on federally related loans in special flood hazard areas.
Traps
Distinguish an origination fee from discount points; do not confuse LTV with loan-to-value based on appraised value versus purchase price (lenders use the lesser). Watch for the claim that a borrower "owns" the property free of the lien until foreclosure - the lien still exists.
Worked example
A $250,000 loan with 2 discount points costs 2% × $250,000 = $5,000, paid at closing to buy down the rate.