Financing and Settlement on the Real Estate Exam: Loan Types, RESPA Kickbacks and the TRID Disclosures

What the outlines test on financing

Financing is a small area by item count, but much of it is federal law, which applies the same way in every state. As checked on October 28, 2026:

PSI's Financing area, 10% of the salesperson exam, covers the same federal laws and adds a longer list of loan types: amortized, balloon and interest-only loans, ARMs, owner financing, reverse mortgages, home equity loans and lines of credit, and construction, rehab and bridge loans. Settlement sits under PSI's Transfer of Title area. The loan math is in the math guide.

Loans, lenders and mortgage clauses

Government-backed and conventional loans

• VA-backed loans. The Department of Veterans Affairs says its purchase loans need no down payment "as long as the sales price isn't higher than the home's appraised value," require no PMI or FHA mortgage insurance premium, and may carry a one-time VA funding fee. The borrower needs a Certificate of Eligibility and must live in the home.
• FHA loans. HUD, through the Federal Housing Administration, insures mortgages made by approved lenders. The National Housing Act requires the borrower to pay at least 3.5% of the appraised value in cash or its equivalent, and lets HUD charge an up-front premium and annual premiums for the insurance, known as the mortgage insurance premium (MIP). Current premium rates are set by HUD, so use the figures your course gives.
• Conventional loans. PMI protects the lender if the borrower can't pay and, in the VA's words, is "usually required on conventional loans if you make a down payment of less than 20%."
• USDA loans. Both outlines list USDA and Rural Development programs. Under USDA's Single Family Housing Guaranteed Loan Program rules, the loan serves low- and moderate-income buyers who will live in rural areas: household income can't exceed the program's moderate-income limit, the home must be the buyer's principal residence, and the loan can be as large as the appraised market value plus the up-front guarantee fee.

When PMI ends

For loans covered by the Homeowners Protection Act (a single-family home that is the borrower's principal residence, financed on or after July 29, 1999), the law sets three points at which PMI ends, with exceptions for loans the law treats as high risk:

Mortgage clauses and security instruments

• Acceleration clause. Lets the lender demand the whole balance when certain conditions occur, typically a material breach such as missed payments.
• Due-on-sale clause. Lets the lender require full repayment if the property is sold or transferred without its consent. The Garn-St Germain Depository Institutions Act of 1982 made these clauses enforceable despite contrary state law, but for homes of fewer than five units the lender can't use one for listed transfers, such as to a spouse or children, to a relative on the borrower's death, in a divorce, or into a living trust the borrower stays a beneficiary of (12 U.S.C. 1701j-3).
• Deed of trust. Involves three parties, a lender, a borrower and a trustee, and almost always includes a power-of-sale clause that allows a nonjudicial foreclosure.
• Lien vs title theory. Under the title theory, title rests with the lender. Most states follow the lien theory, where the borrower keeps legal title unless there is a foreclosure. An intermediate theory applies the lien theory until default.
• Balloon loans. End with a large final payment. Regulation Z's disclosure rules define a balloon payment as one more than two times a regular periodic payment (12 CFR 1026.18(s)(5)).

Where lenders get money to lend

Banks, savings and loans and mortgage companies make the loans. Fannie Mae and Freddie Mac buy mortgages from those lenders and either hold them or package them into mortgage-backed securities, and the lenders use the cash to make more loans. The Federal Housing Finance Agency says this role in the secondary mortgage market provides "liquidity, stability and affordability" to the mortgage market.

For quick recall of the terms above, 49 financing flashcards planned for launch are planned for this area.

RESPA: referral fees, kickbacks and affiliated businesses

The Real Estate Settlement Procedures Act applies to settlement services in federally related mortgage loans. Its Section 8, implemented at 12 CFR 1024.14, is the part both outlines point to: Pearson VUE lists referrals and rebates, and PSI lists kickbacks. Its core rules:

• No referral fees. No one may give or accept "any fee, kickback or other thing of value" for referring settlement service business.
• No unearned splits. No one may give or accept part of a settlement charge except for services actually performed.
• "Thing of value" is broad. It includes money, discounts, trips, services at special rates and paying another person's expenses.
• The agreement can be unwritten. A practice or pattern of conduct can establish an agreement to refer.

Section 8 also lists what is allowed, including payments for services actually performed, "cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers," normal promotional and educational activities not tied to referrals, and an employer's payments to its own employees. The brokerage exception covers only fee splits among people acting as real estate brokers, not payments between real estate brokers and mortgage brokers. Violations can bring fines of up to $10,000, up to a year in prison, or both, and liability for three times the charge paid for the service.

Three related rules round out the topic:

• Affiliated business arrangements are allowed if the person referring gives a written disclosure of the relationship and estimated charges, doesn't require use of the affiliate, and receives only a return on ownership (12 CFR 1024.15).
• Section 9 bars a seller from requiring the buyer to buy title insurance from a particular company, as a condition of the sale. A seller who does is liable for three times the title insurance charges.
• Escrow accounts. A servicer may require a cushion of no more than one-sixth of the estimated total annual payments from the account (12 CFR 1024.17).

TRID: the Loan Estimate and the Closing Disclosure

The TILA-RESPA integrated disclosure rules in Regulation Z set two forms and their deadlines:

"Business day" has two meanings here. For the three days after application, it is a day the lender's offices are open for substantially all business. For the seven-day and three-day waiting periods, it is every calendar day except Sundays and federal legal holidays, so Saturdays count. For a Thursday closing in a week with no federal holiday, count back Wednesday, Tuesday and Monday: the consumer must have the Closing Disclosure by Monday.

Truth in Lending advertising triggers

Regulation Z's advertising rule, 12 CFR 1026.24, works in two steps. If an ad states any of these triggering terms:

• the amount or percentage of a down payment
• the number of payments or the period of repayment
• the amount of any payment
• the amount of any finance charge

then it must also state the down payment, the terms of repayment including any balloon payment, and the annual percentage rate, using that term, with a note if the rate may increase. Any rate of finance charge in an ad must be stated as an "annual percentage rate." A flyer that says "only $1,995 a month" therefore triggers the full disclosures, while a general phrase such as "easy financing available" doesn't name a triggering term.

The Equal Credit Opportunity Act compared with fair housing

Regulation B lists the prohibited bases for any credit decision. It overlaps with the Fair Housing Act but isn't the same list:

Regulation B also prohibits discouragement. Since July 21, 2026, the rule bars a creditor's oral or written statements, in advertising or otherwise, directed at applicants or prospective applicants that the creditor knows or should know would make a reasonable person believe the creditor would deny credit, or grant it on less favorable terms, because of a prohibited basis. That wording comes from a CFPB final rule published April 22, 2026, which also provides that ECOA does not authorize disparate-impact liability and adds conditions for special purpose credit programs. The list of prohibited bases above didn't change; it is the one in the eCFR as of October 26, 2026. Older textbooks quote the earlier discouragement wording. The fair housing 2027 guide covers the housing side.

A Passy practice item on RESPA

A mortgage loan officer offers a listing agent a $250 gift card for every buyer the agent refers who closes a loan with the lender. The agent performs no other service for the lender. Under RESPA, the arrangement is:

• A. A prohibited payment for referrals
• B. Allowed because a gift card isn't cash
• C. Allowed if the buyer is told in writing
• D. Allowed because it is a brokerage split

Answer: A. A gift card is a "thing of value," and paying it for referrals violates Section 8 whether or not it is disclosed. B ignores how broadly RESPA defines a thing of value, C confuses this with the affiliated-business disclosure, and D misapplies the exception, which covers only splits among real estate brokers and agents.

Questions like this test the exceptions as much as the rule. If financing is your weakest area after a practice set, Weak Spot's planned focus on your lowest-accuracy area is meant to send you back to it first.

Settlement: where the numbers come together

Pearson VUE gives settlement and closing 2 items, and PSI lists settlement procedures and the parties involved. Be ready to name the parties, the Closing Disclosure deadline and which side is debited or credited for each item. Regulation Z also requires the settlement agent to give the seller a Closing Disclosure for the seller's side no later than the day of consummation. The worked prorations, cash-to-close and net-to-seller examples are in the math guide, and the free practice questions include a RESPA item and a closing-date item. When you want volume, 55 financing-and-settlement questions planned for launch are planned in proportion to the area's 7 of 80 items.