Financing

Financing: Mortgages, Loans, Federal Regulations & Closing Math Financing questions account for roughly 9% of the Illinois Broker exam, making this one of the most math-heavy and regulation-dense sections you'll face — mastering the vocabulary, loan types, federal disclosure rules, and closing math calculations is essential for passing. --- ## Mortgage Fundamentals A real estate transaction rarely involves a cash-only sale. Understanding how financing works begins with two core documents: - Promissory Note: The borrower's written promise to repay the loan — this is the *personal* obligation (IOU). - Mortgage: The security instrument that pledges the property as collateral. In Illinois, the mortgage gives the *lender* a lien on the property. Illinois follows lien theory (not title theory), meaning the borrower retains title while the lender holds a lien. If the borrower defaults, the lender must go through judicial foreclosure — a court-supervised process. Illinois also provides a 7-month statutory redemption period after the foreclosure sale, during which the borrower may reclaim the property by paying the debt. --- ## Loan Types You Must Know | Loan Type | Key Feature | |---|---| | Conventional | Not government-backed; typically requires 20% down to avoid PMI | | FHA | Government-insured; lower down payment; requires MIP (mortgage insurance premium) | | VA | For eligible veterans; no down payment required; no PMI | | USDA | Rural development loan; low/no down payment | | ARM (Adjustable-Rate Mortgage) | Interest rate fluctuates with an index after initial fixed period | | Balloon Mortgage | Lower payments early, large lump sum ("balloon") due at end of term | | Reverse Mortgage | For homeowners 62+; lender pays borrower; no monthly payments required…