Financing
Most real estate is purchased with borrowed money. This topic covers mortgage instruments, loan clauses, the parties to a loan, and key federal financing laws.
Mortgage Instruments and Clauses
A borrower typically signs a promissory note (the promise to repay) and a security instrument (a mortgage or deed of trust) that pledges the property as collateral. Important clauses include the acceleration clause (calling the full balance due on default), the alienation or due-on-sale clause (triggered by transfer), the defeasance clause (releasing the lien when paid), and the prepayment clause. Foreclosure lets a lender force a sale after default.
Loan Types and Federal Laws
Loans may be conventional, or government-backed such as FHA-insured and VA-guaranteed. A typical payment is PITI: principal, interest, taxes, and insurance. Loan-to-value (LTV) compares the loan to the property's value; low down payments may require private mortgage insurance (PMI). Federal laws include the Truth in Lending Act (APR and disclosure), the Real Estate Settlement Procedures Act (RESPA), and the Equal Credit Opportunity Act (prohibiting lending discrimination).