Financing
Loan types, LTV, points, PMI and the federal lending laws: RESPA, TILA, TRID and ECOA.
Financing in one paragraph
Loan Estimate vs Closing Disclosure
| Loan Estimate | Closing Disclosure | |
|---|---|---|
| When | Within 3 business days of application, and at least 7 business days before closing | Received at least 3 business days before closing |
| Purpose | Estimated terms and costs so the borrower can shop and compare | Final terms and costs to check against the Loan Estimate |
| Length | 3 pages | 5 pages |
| Changes | Lender fees generally zero tolerance, certain shoppable third-party fees 10% total | APR inaccuracy, new loan product or added prepayment penalty restarts the 3 business day wait |
Financing: 4 rules to memorize
LTV uses the lower value.
Loan ÷ the lower of price or appraisal.
1 point = 1% of the loan.
Not the price.
RESPA bans kickbacks.
No unearned fees for referring settlement business.
TRID: 3 business days.
The Closing Disclosure arrives at least three business days before closing.
Financing, explained
Know the federal laws by purpose. RESPA covers settlement and bans kickbacks. Truth in Lending requires disclosure of credit costs, including the APR. TRID combined those disclosures into the Loan Estimate and the Closing Disclosure. The Equal Credit Opportunity Act bans discrimination in lending, including based on marital status, age and public assistance income.
Know the three big loan types cold. A conventional loan is not government backed, and a conforming one fits Fannie Mae and Freddie Mac limits: $832,750 for a one-unit home in most of the country in 2026. FHA loans allow 3.5% down with a credit score of 580 or higher (10% down from 500 to 579), and charge an upfront mortgage insurance premium of 1.75% of the base loan plus annual MIP. VA loans often need no down payment and no mortgage insurance, but usually carry a one-time funding fee.
TRID has more timing than the 3 business day Closing Disclosure rule. The Loan Estimate goes out within 3 business days of application and at least 7 business days before closing. Lender fees on the Loan Estimate generally cannot go up at all, and certain third-party fees the borrower could shop for can rise only 10% in total. If the APR becomes inaccurate, the loan product changes or a prepayment penalty is added, the borrower gets a new Closing Disclosure and a new 3 business day wait.
Truth in Lending also polices ads. If an ad states a trigger term, such as the down payment, the number of payments or repayment period, a payment amount or a finance charge, it must also state the down payment, the full repayment terms and the APR. A rate in an ad must be called the annual percentage rate.
How the exam tries to trip you up
- Points and the LTV both run off the loan, but LTV divides by the lower of price or appraisal. If the home appraises above the price, use the price.
- The question mixes up the two TRID clocks. The Loan Estimate is 3 business days after application. The Closing Disclosure is 3 business days before closing.
- An ad that says only "$10,000 down" looks harmless, but the down payment is a trigger term. The ad must also give repayment terms and the APR.
- A veteran with no savings is not stuck with FHA's 3.5% down. A VA loan often needs nothing down and no mortgage insurance, though a funding fee may apply.
Financing practice questions
A lender approves a $360,000 loan on a home appraised at $450,000. What is the loan-to-value ratio?
Financing flashcards
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All 7 terms at a glanceShowHide
- LTV
- Loan amount ÷ the lower of price or appraised value.
- Discount point
- Prepaid interest equal to 1% of the loan amount.
- Closing Disclosure
- Final loan terms, received at least 3 business days before closing.
- Loan Estimate
- TRID form showing estimated loan terms and costs, delivered within 3 business days of application.
- Conforming loan
- A conventional loan within Fannie Mae and Freddie Mac limits, $832,750 for one unit in most areas in 2026.
- Upfront MIP
- FHA's one-time mortgage insurance premium, 1.75% of the base loan amount, often financed into the loan.
- VA funding fee
- One-time fee on most VA loans that replaces monthly mortgage insurance, which VA loans do not require.
Financing: common questions
Sources and further reading
More Financing questions in the app
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