Financing
Real Estate Financing Types for the Exam
The financing section of the real estate exam covers a wide range of loan types, structures, and concepts. Here's a consolidated reference covering the types most likely to appear on your exam.
Major Loan Types
Conventional Loan
Any mortgage not insured by a government agency. Must conform to Fannie Mae/Freddie Mac standards to be sold on the secondary market. Requires 3–20%+ down payment; PMI required below 20% down.
FHA Loan
Insured by the Federal Housing Administration. Low down payment (3.5%), more lenient credit standards, accessible to first-time buyers. Requires MIP (mortgage insurance premium) for the life of most loans.
VA Loan
Guaranteed by the Department of Veterans Affairs. Available to eligible veterans, active-duty, and surviving spouses. Zero down payment, no PMI, competitive rates. VA funding fee applies.
USDA Loan
Guaranteed by the U.S. Department of Agriculture for rural and suburban properties. Zero down payment for qualified buyers in eligible areas.
Adjustable-Rate Mortgage (ARM)
Interest rate adjusts periodically after an initial fixed period. Caps limit how much the rate can change per adjustment and over the life of the loan.
Purchase Money Mortgage
Seller financing — the seller extends credit to the buyer in lieu of or in addition to traditional lender financing. The deed transfers but the seller holds a mortgage on the property.
Hard Money Loan
Short-term, asset-based loan from private lenders. High interest rates, quick closing, based on property value rather than borrower creditworthiness. Common for fix-and-flip investors.
Blanket Mortgage
A single mortgage that covers multiple properties. Common for developers and investors. Usually includes a release clause allowing individual properties to be sold and released from the lien.
Financing FAQ
What is the secondary mortgage market?
The secondary mortgage market is where lenders sell existing mortgages to investors. Fannie Mae and Freddie Mac are the major players. Selling loans allows primary lenders to replenish capital and make new loans.
What is PMI and when is it required?
PMI (Private Mortgage Insurance) is required on conventional loans when the down payment is less than 20%. It protects the lender (not the borrower) against default. It can be cancelled once equity reaches 20%.
What is a balloon mortgage?
A balloon mortgage has regular monthly payments (often amortized over 30 years) but requires the remaining balance to be paid in full at the end of a shorter term (typically 5–10 years). Common in commercial lending.
What is a bridge loan?
A short-term loan that 'bridges' the gap between buying a new home and selling the current one. It allows homeowners to make a non-contingent offer on a new property while their existing home is still on the market.