Financing, Mortgages and Settlement
Core concepts
Real estate financing involves a promissory note (the promise to pay) and a mortgage or deed of trust (the security instrument). Key terms include principal, interest rate, APR, amortization, loan-to-value (LTV), points, escrow reserves, and private mortgage insurance. Loan types include conventional, FHA, VA, and USDA, each with different eligibility, down payment, and underwriting rules. Settlement involves closing disclosures, title insurance, prorations, and disbursement of funds.
Federal disclosure rules require good-faith estimates and closing disclosures within required timeframes; the APR helps borrowers compare the cost of credit because it includes certain fees. Oklahoma licensees should not give legal or tax advice, but they must understand how financing contingencies and deadlines affect the contract.
Traps
Do not confuse the note rate with the APR. A lower note rate can carry a higher APR if fees are high. Another trap is LTV: it is loan amount divided by appraised value or purchase price, whichever the lender uses. Escrow and impound rules limit how much a lender may collect. Watch for "prepaid interest" and prorations at closing; they are not the same as points. Also distinguish prequalification from preapproval and from a full commitment.
Worked example
Purchase price is $250,000 and the loan is $200,000. LTV is 80%. If the lender requires mortgage insurance above 80% LTV, this loan may avoid it depending on program rules. A buyer who says "I am approved for $200,000" still needs an appraisal and underwriting; the financing contingency should remain until the lender issues a clear commitment.
Rule of thumb
Fix the financing deadline, document the loan program, and compare APR-not just rate. At closing, reconcile debits and credits to the penny.