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Financing and Settlement accounts for 7 scored questions on the National/General portion of the Texas sales agent exam. Pearson VUE divides those questions among four official subtopics: financing concepts and components, 2 items; lender requirements, 1 item; federal financing regulations and regulatory bodies, 2 items; and settlement and closing the transaction, 2 items. This is not solely a law topic. It combines loan concepts, federal rules, lender underwriting, insurance, documents, and closing procedure.
CURRENT AS OF AUGUST 12, 2026
This guide was checked against Pearson VUE outline #094401, revision 01/2026, and current official CFPB, HUD, VA, USDA, FHFA, Ginnie Mae, FDIC, and Texas sources. It is exam preparation, not legal, lending, insurance, or tax advice. Rules and loan programs can change, so use the official links below for a real transaction.
Financing questions become easier when you sort the facts before doing anything else. Ask four questions: What creates or evidences the debt? What secures it? Which loan program or lender rule applies? What disclosure or closing step is being tested?
That sequence prevents the most common errors. A note is not a lien. FHA and VA do not usually hand the borrower the purchase money. A Loan Estimate is not a Closing Disclosure. Consummation of a loan is not necessarily the same legal event as transfer of title.
Use this page as the map, then use the linked lessons for depth and the financing and settlement practice set to test each official subtopic.
Financing and Settlement exam outline
| Official subtopic | Scored items | What Pearson VUE lists |
|---|---|---|
| A. Financing concepts and components | 2 | Financing methods, lien and title theory, deed of trust, funding sources, loan types, programs, and mortgage clauses |
| B. Lender requirements | 1 | FHA, VA, USDA, conventional lending, qualification, LTV, hazard and flood insurance, PMI, and MIP |
| C. Federal financing regulations and regulatory bodies | 2 | TILA and Regulation Z, TRID, CFPB, Loan Estimate, Closing Disclosure, RESPA, ECOA, mortgage fraud, and predatory lending |
| D. Settlement and closing the transaction | 2 | The people, documents, money, adjustments, delivery, funding, disbursement, and recording that complete a transaction |
Pearson classifies four of the seven items as knowledge, two as application, and one as analysis. Learn the vocabulary, but expect several questions to present a short borrower or closing scenario.
A. Financing concepts and components, 2 items
Methods of financing
The outline begins with mortgage financing and seller financing.
- Conventional financing is not insured or guaranteed by a federal loan program. The loan may be conforming or nonconforming.
- Nonconventional financing includes government-backed programs such as FHA-insured, VA-guaranteed, and USDA-guaranteed loans.
- Seller financing means the seller extends some or all of the credit instead of receiving the entire price from a third-party lender at closing.
- A land contract, also called a contract for deed, is a seller-financing arrangement in which the buyer commonly takes possession and pays over time. In the traditional unrecorded model the seller may retain record title, but state law can change that result. Texas, for example, treats a recorded executory contract as a deed with a vendor's lien under Property Code Section 5.079 and gives a statutory conversion right in Section 5.081.
Do not confuse the program with the payment feature. A loan can be conventional and fixed-rate, conventional and adjustable-rate, FHA and fixed-rate, or another permitted combination.
Read types of mortgages and loans for the full program comparison.
Note, security instrument, and deed of trust
In a typical mortgage-financed purchase, the borrower signs two different loan documents:
- The promissory note is the borrower's written promise to repay and evidence of the debt.
- The mortgage or deed of trust pledges the property as collateral and creates the lien securing that debt.
The note does not transfer title to the buyer. The deed does that. The security instrument does not create the buyer's promise to repay. It makes the property security for the obligation.
A mortgage is commonly taught as a two-party security instrument between mortgagor and mortgagee. A deed of trust adds a trustee and commonly includes a power of sale. Texas usually uses a deed of trust, but the National/General outline also expects you to recognize lien theory, title theory, and the general foreclosure distinction.
Use note, mortgage, and deed of trust for the document and party chart.
Primary and secondary mortgage markets
The primary mortgage market is where borrowers obtain loans from originators such as banks, credit unions, mortgage companies, and other lenders. The secondary mortgage market is where existing loans or interests in them are sold, pooled, or securitized. The secondary market gives lenders liquidity to make more loans.
Keep the major organizations straight:
- Fannie Mae and Freddie Mac are government-sponsored enterprises. They buy qualifying mortgages and may hold them or package them into mortgage-backed securities.
- Ginnie Mae is a government corporation. It does not buy or sell loans and does not issue mortgage-backed securities. It guarantees timely principal and interest on qualifying securities backed by government-insured or government-guaranteed loans.
For current limits and the three-entity comparison, read the secondary mortgage market.
Loan features and clauses
Know what event activates each clause:
| Clause | Exam meaning |
|---|---|
| Acceleration | The lender may declare the full unpaid balance due after a stated default |
| Due-on-sale or alienation | The lender may call the loan due after an unapproved transfer |
| Defeasance | The security interest is released when the secured debt is paid |
| Prepayment | States whether and how the borrower may pay early, including any lawful charge |
| Subordination | A lienholder agrees that its lien will have lower priority than another lien |
A fully amortizing loan reaches a zero balance through scheduled principal and interest payments by the end of its term. An interest-only or partially amortizing loan can leave principal due later. One discount point equals 1 percent of the loan amount, but the interest-rate effect of a point is not fixed.
Read loan clauses and Texas usury for the event-to-clause method.
B. Lender requirements, 1 item
Conventional, FHA, VA, and USDA
| Program | Government role | High-value exam distinction |
|---|---|---|
| Conventional | No federal insurance or guarantee | May require conventional PMI at higher LTV |
| FHA | FHA insures qualifying lender-made loans | Low minimum investment may be available; upfront and annual MIP rules apply |
| VA | VA guarantees part of a qualifying lender-made loan | Eligibility is required; no monthly mortgage insurance; a funding fee may apply |
| USDA guaranteed | USDA guarantees qualifying lender-made loans | Eligible rural area, income, occupancy, and program rules apply; 100 percent financing may be available |
The FHA-insured, VA-guaranteed, and USDA-guaranteed programs in this table support loans made by approved private lenders. USDA also administers a separate Section 502 Direct Loan Program, so “USDA never lends directly” is false. Avoid absolute statements about approval; each program has current property, borrower, lender, and underwriting rules.
Buyer qualification and LTV
Lenders evaluate the borrower's ability and willingness to repay and the property offered as collateral. Common inputs include verified income, employment, assets, debts, credit history, the proposed housing payment, and the property's value and condition.
Loan-to-value ratio = loan amount ÷ the value used by the lender
If a home is priced and appraised at $400,000 and the loan is $320,000, the LTV is 80 percent. A higher LTV generally means less borrower equity and more lender risk.
The exam may distinguish front-end housing expense from a back-end debt-to-income ratio, but use the figures and definitions supplied in the question. Do not invent a universal approval ratio.
Hazard insurance, flood insurance, PMI, and MIP
These cover different risks:
- Hazard or homeowners insurance protects against covered property losses. A lender commonly requires coverage to protect the collateral.
- Flood insurance is separate from a standard homeowners policy. Federal mandatory-purchase rules generally apply to a regulated loan secured by improved real property or a mobile home in a Special Flood Hazard Area where National Flood Insurance Program coverage is available.
- Private mortgage insurance, or PMI, protects the lender on a conventional loan. A borrower may request cancellation at the scheduled 80 percent point if federal conditions are met. Automatic termination generally occurs at the scheduled 78 percent point when the borrower is current.
- FHA mortgage insurance premium, or MIP, is not conventional PMI. For many current FHA loans with an original LTV above 90 percent, annual MIP continues for the mortgage term or 30 years, whichever occurs first. At an original LTV of 90 percent or less, the scheduled period is generally 11 years or the mortgage term, whichever occurs first.
Use mortgage insurance: PMI, MIP, VA, and USDA for the removal and duration rules.
C. Federal financing regulations and regulatory bodies, 2 items
TILA, Regulation Z, and TRID
The Truth in Lending Act, implemented by Regulation Z, focuses on the cost and terms of consumer credit. Exam cues include annual percentage rate, finance charge, advertising disclosures, rescission, the Loan Estimate, and the Closing Disclosure.
For a covered transaction:
- The creditor must deliver or place the Loan Estimate in the mail no later than the third business day after receiving an application.
- The creditor must ensure the consumer receives the Closing Disclosure no later than three business days before consummation.
- A new three-business-day waiting period is required if the disclosed APR becomes inaccurate, the loan product changes, or a prepayment penalty is added. Other changes can still require a corrected disclosure even when they do not restart the waiting period.
The right of rescission is not a right to cancel every real estate loan. It generally applies to certain non-purchase consumer credit transactions secured by the consumer's principal dwelling. A residential mortgage transaction used to acquire or construct the principal dwelling is exempt. A same-creditor refinance with no new advance can also be exempt, apart from qualifying new money.
Read Closing Disclosure and TRID for the timing chart.
RESPA and Regulation X
The Real Estate Settlement Procedures Act, implemented by Regulation X, addresses mortgage settlement practices. Section 8 prohibits giving or accepting a fee, kickback, or thing of value under an agreement that settlement-service business will be referred. It also prohibits splitting a charge when no actual services are performed.
RESPA does not ban every payment connected with a transaction. Regulation X recognizes bona fide compensation for actual goods, facilities, or services, certain cooperative brokerage arrangements between real estate license holders acting in a brokerage capacity, and qualifying promotional or educational activities. Disclosure alone does not make a prohibited referral payment legal.
ECOA and Regulation B
The Equal Credit Opportunity Act, implemented by Regulation B, bars credit discrimination based on race, color, religion, national origin, sex, marital status, age when the applicant can contract, receipt of public-assistance income, and good-faith exercise of rights under the Consumer Credit Protection Act or a qualifying state law.
For a completed application, a creditor generally must notify the applicant of action taken within 30 days. An adverse-action notice must provide specific reasons or explain the applicant's right to request them. A lender may still use legitimate credit factors such as income, debts, credit history, collateral, and repayment ability.
Mortgage fraud and predatory lending
Mortgage fraud involves a material misstatement, misrepresentation, or omission intended to influence a lender or the mortgage process. Exam examples include false income, employment, assets, debt, occupancy, identity, or appraisal information; straw buyers; and undisclosed agreements.
Predatory lending is not simply a high-cost loan. Look for abusive or deceptive conduct such as falsified terms, unaffordable loan steering, equity stripping, fee packing, or loan flipping that provides no meaningful borrower benefit. A lawful property resale for a profit is not automatically illegal flipping. The fraudulent facts are what matter.
Use federal lending laws: TILA, RESPA, ECOA, and fraud for the complete law-to-cue table.
D. Settlement and closing the transaction, 2 items
Closing is the coordinated process that completes the contract, loan, and transfer. Depending on state law and local practice, participants may include the buyer, seller, brokers, lender, settlement or escrow agent, title company, attorneys, recorder, insurers, and taxing authorities.
What happens before, at, and after closing
- The parties satisfy contract and lender conditions.
- The settlement agent gathers payoff, title, tax, insurance, and closing figures.
- The borrower reviews required loan disclosures and the parties review the final settlement figures.
- The parties sign the deed, note, security instrument, affidavits, and other required documents.
- The buyer supplies required funds and the lender authorizes funding.
- The settlement agent coordinates authorized disbursement and recording in the sequence required by state law, lender instructions, escrow conditions, and the transaction documents.
Do not assume every event occurs at one ceremonial table. Delivery, signing, consummation, funding, disbursement, and recording are distinct events. Their order and legal effect can depend on the transaction and state law.
Debits, credits, and prorations
A debit is a charge to a party. A credit is an amount in that party's favor. The same item may appear as a seller debit and buyer credit, or the reverse, depending on who owes the item and when it is paid.
For a proration:
- Identify the full-period amount.
- Use the day-count method stated in the problem.
- Determine which party owns the closing day.
- Count the responsible party's days.
- Multiply the daily amount by those days.
- Place the debit and credit on the correct sides.
Property taxes, rents, interest, association charges, deposits, and prepaid expenses may be adjusted. Never assume that a charge is always the buyer's or always the seller's. Read the contract and the facts.
Documents do different jobs
| Document | Main function |
|---|---|
| Deed | Transfers the stated real-property interest when legally delivered and accepted |
| Promissory note | States the borrower's repayment promise |
| Mortgage or deed of trust | Creates the lien securing the debt |
| Loan Estimate | Gives estimated loan and closing terms early in a covered application |
| Closing Disclosure | Gives final loan and closing terms for a covered transaction |
| Settlement statement | Accounts for charges, credits, and disbursements |
Read Closing Disclosure, closing costs, and TRID for worked debit and credit examples.
Texas overlay for a National/General exam area
The official seven items are National/General. Texas details can still help you keep local practice separate:
- Texas commonly uses a deed of trust with a power of sale.
- An ordinary Texas deed-of-trust foreclosure can proceed through the statutory nonjudicial process if the documents and law permit it.
- Texas has no general statutory post-sale right of redemption after an ordinary deed-of-trust foreclosure. Special tax and association foreclosure rules differ.
- Texas has no statewide tax on the transfer of a fee-simple interest in real property. A national settlement question can still test transfer-tax arithmetic when it supplies a rate.
- Texas home-equity lending and foreclosure have special constitutional rules.
These points are supporting context, not a replacement for the official A to D outline. Read Texas deed of trust and nonjudicial foreclosure for the local rules.
Four exam-style checks
1. A buyer signs a note and a deed of trust. Which document creates the lien?
A. The note
B. The deed of trust
C. The deed
D. The Loan Estimate
Answer: B. The deed of trust is the security instrument and creates the lien. The note is evidence of the repayment obligation.
Check 2: PMI cancellation
2. A conventional borrower reaches the cancellation date when the principal balance is scheduled to equal 80 percent of original value. Is PMI automatically removed?
A. Yes, with no conditions
B. No. The borrower may request cancellation, subject to federal conditions
C. Yes, but only on an FHA loan
D. No. PMI can never be removed
Answer: B. The scheduled 80 percent point is generally a borrower-request threshold. Automatic termination generally uses the scheduled 78 percent point and requires the borrower to be current.
Check 3: TRID timing
3. A lender receives the six pieces of information that form a TRID application on Monday. What is the timing rule?
A. The borrower must receive the Loan Estimate that day
B. The creditor must deliver or mail the Loan Estimate no later than the third business day after application
C. The creditor waits until appraisal
D. The Closing Disclosure replaces the Loan Estimate
Answer: B. Regulation Z uses a delivery or mailing deadline for the Loan Estimate. Do not replace that wording with a guaranteed receipt deadline.
Check 4: tax proration
4. Unpaid property taxes cover a period when the seller owned the property. At closing, the adjustment is generally shown as
A. a seller debit and buyer credit
B. a seller credit and buyer debit
C. two buyer debits
D. no entry
Answer: A. The seller is charged for the seller's share and the buyer receives the offsetting credit, assuming the stated facts make the taxes unpaid.
These are original study questions, not Pearson VUE exam items.
How to study Financing and Settlement
Use four passes that match the official outline:
- Draw the note, lien, markets, programs, and clauses from memory.
- Compare lender qualification, LTV, hazard insurance, flood insurance, PMI, and MIP.
- Match TILA, RESPA, ECOA, TRID, fraud, and predatory-lending cues.
- Work closing documents, debits, credits, prorations, funding, disbursement, and recording.
Then use the free financing and settlement practice questions. Review the explanation even when you answer correctly. A correct guess does not prove that you can distinguish the same concepts in a new fact pattern.
Frequently asked questions
How many Financing and Settlement questions are on the Texas real estate exam?
The current Pearson VUE National/General salesperson outline assigns 7 scored items to Financing and Settlement: 2 on financing concepts and components, 1 on lender requirements, 2 on federal financing regulations and regulatory bodies, and 2 on settlement and closing.
Is Financing and Settlement all federal law?
No. Federal law is one of four subtopics. The area also tests financing instruments, seller financing, loan programs, underwriting, insurance, market participants, mortgage clauses, and closing procedure.
What is the difference between the note and the deed of trust?
The promissory note is the borrower's written promise to repay and evidence of the debt. The deed of trust is the security instrument that pledges the property and creates the lien securing the obligation.
When are the Loan Estimate and Closing Disclosure due?
For a covered transaction, the creditor must deliver or place the Loan Estimate in the mail no later than the third business day after receiving an application. The creditor must ensure the consumer receives the Closing Disclosure no later than three business days before consummation.
Does every Closing Disclosure change restart the three-day wait?
No. A new three-business-day waiting period is required when the APR becomes inaccurate, the loan product changes, or a prepayment penalty is added. Other changes can require a corrected disclosure without restarting the waiting period.
What is the difference between PMI and FHA MIP?
PMI is private mortgage insurance associated with conventional lending. FHA MIP is the mortgage insurance used for FHA-insured loans. The cancellation and duration rules are different.
Does Texas have a real estate transfer tax?
Texas does not impose a statewide tax on the transfer of a fee-simple interest in real property. The National/General exam can still present a transfer-tax calculation with a rate supplied in the question.
MASTER ALL FOUR OFFICIAL SUBTOPICS
Turn the outline into points.
Practice original financing and settlement questions with explanations, then return to the exact lesson behind each miss. Pass Texas is not affiliated with TREC or Pearson VUE and does not reproduce live exam questions.
Official sources
- Pearson VUE Texas Real Estate Content Outlines, #094401, revision 01/2026
- CFPB, current Regulation Z, 12 CFR Part 1026
- CFPB, Regulation Z Section 1026.19, mortgage disclosures
- CFPB, current Regulation X, 12 CFR Part 1024
- CFPB, Regulation X Section 1024.14, prohibited referral payments
- CFPB, current Regulation B, 12 CFR Part 1002
- CFPB, PMI cancellation and automatic termination
- HUD, FHA Single Family Housing Policy Handbook 4000.1
- VA, funding fee and closing costs
- USDA, Single Family Housing Guaranteed Loan Program
- USDA, Single Family Housing Direct Home Loans
- FHFA, Fannie Mae and Freddie Mac
- Ginnie Mae, funding government lending
- FDIC, flood insurance mandatory purchase requirements
- Texas Property Code Section 51.002, foreclosure sale
- Texas Property Code Sections 5.079 and 5.081, executory-contract title and conversion
- Texas Constitution Article VIII, Section 29, transfer-tax prohibition
Primary-source verification (2026-08-12): The seven-item allocation was rechecked against Pearson outline #094401, revision 01/2026. Loan-disclosure and federal-law claims were checked against the current CFPB regulations; program claims against HUD, VA, USDA, FHFA, Ginnie Mae, and FDIC materials; and Texas overlays against the Texas Constitution and statutes. This review also distinguishes USDA's guaranteed program from its separate direct-loan program and avoids implying a universal disbursement-before-recording sequence. This is educational exam-prep content, not legal, lending, insurance, or tax advice.