Financing
This topic covers loan instruments, creative financing techniques, discount points, and the federal laws that govern lending.
Instruments and Techniques
A borrower signs a note and a security instrument (a mortgage or, in many Western states, a deed of trust with a trustee). Creative financing includes seller carrybacks, wraparound mortgages (a junior loan wrapping an existing one), and assumptions. Key clauses include acceleration, alienation (due-on-sale), and defeasance. On default, the lender may foreclose, often nonjudicially under a deed of trust.
Points and Federal Laws
Discount points are prepaid interest that buy down the rate; one point equals one percent of the loan. Payments commonly bundle PITI. Federal laws include the Truth in Lending Act (APR disclosure), RESPA (settlement disclosures and anti-kickback rules), and the Equal Credit Opportunity Act (prohibiting lending discrimination).