Real Estate Finance
The two documents
A loan has a note (the promise to pay) and a security instrument. South Carolina is a lien theory state, so the borrower keeps title and possession while the lender holds a lien; foreclosure is typically a court action, a deficiency judgment may be sought, and there is no post-sale statutory right of redemption for the borrower in a mortgage foreclosure. Deeds of trust with power of sale exist, but expect judicial supervision in South Carolina practice.
The numbers
Payment is PITI: principal, interest, taxes, insurance, plus mortgage insurance and HOA dues where applicable. LTV is loan divided by value or price, whichever is lower. Under the Homeowners Protection Act, borrower-requested PMI cancellation is available at 80 percent LTV and automatic termination at 78 percent. FHA loans carry MIP, VA loans use entitlement and a certificate of eligibility, and USDA loans are rural. Under TRID, the Loan Estimate goes out within three business days of application and the Closing Disclosure must be delivered at least three business days before consummation, with zero tolerance for lender charges that change and a 10 percent cumulative bucket for others. Ability-to-repay and qualified mortgage rules cap risky features.
Traps
- One discount point equals 1 percent of the loan, not of the price.
- Prepaid interest is a per diem item at closing.
- APR is not the note rate; it folds in fees.
Worked example
A buyer borrows 320,000 and pays 1.25 discount points. 320,000 times 0.0125 equals 4,000, paid at closing to buy down the rate. Points are not the down payment and are not part of the purchase price.