Financing terms on the NY real estate exam

Financing is the largest vocabulary cluster on the exam and overlaps directly with the math section. You are not expected to underwrite a loan, but you are expected to know who holds what interest, what happens on default, and the order in which liens are paid.

33 terms you need to know

Acceleration Clause

A mortgage provision that allows the lender to demand the entire balance immediately upon default.

Amortization

The gradual repayment of a loan through scheduled payments of principal and interest over time.

Balloon Mortgage

A loan with regular payments that don’t fully amortize, leaving a large lump-sum payment due at maturity.

Conventional Loan

A mortgage not insured or guaranteed by a government agency (not FHA, VA, or USDA). Usually requires PMI if LTV exceeds 80%.

Deed in Lieu of Foreclosure

An agreement where the borrower deeds the property to the lender to avoid foreclosure.

Deficiency Judgment

A court judgment for the difference between the foreclosure sale price and the outstanding loan balance. NY restricts deficiency judgments on most residential mortgages.

Equity

The owner’s interest in property — market value minus liens and other encumbrances.

Escrow

Funds or documents held by a neutral third party until contract conditions are met. NY license law requires brokers to maintain client escrow funds in segregated accounts.

Estoppel Certificate

A signed statement by a tenant or lender confirming the current status of a lease or loan — used to give certainty to a buyer or new lender.

FHA Loan

A mortgage insured by the Federal Housing Administration. Allows lower down payments (3.5%) for qualifying borrowers.

Foreclosure

The legal process by which a lender seizes and sells mortgaged property after default. NY uses judicial foreclosure — requires court action.

General Lien

A lien attaching to all of a debtor’s property, not just one parcel — judgment liens and tax liens are general.

Grantor / Grantee

Grantor = the party transferring an interest. Grantee = the party receiving it.

Lien

A monetary encumbrance against property — mortgages, mechanic’s liens, tax liens, judgment liens.

Loan-to-Value (LTV)

Loan amount divided by property value. Lenders use LTV to assess risk.

Mechanic’s Lien

A statutory lien filed by a contractor or supplier who has provided labor or materials and has not been paid.

Mortgage

A loan secured by real property. The borrower (mortgagor) grants a security interest to the lender (mortgagee).

Mortgage Broker

A licensed intermediary who connects borrowers with lenders. Separately licensed from real estate brokers in NY.

Mortgagor / Mortgagee

Mortgagor = the borrower granting the mortgage. Mortgagee = the lender holding it.

PITI

Principal, Interest, Taxes, Insurance — the four components of a typical residential mortgage payment.

PMI (Private Mortgage Insurance)

Insurance required on most conventional loans with LTV above 80%, protecting the lender against borrower default.

Prepayment Penalty

A fee charged for paying off a mortgage early. Many residential mortgages prohibit them; NY restricts them on certain consumer loans.

Proration

Allocating expenses between buyer and seller as of closing — typically taxes, fuel, insurance, rent.

RESPA (Real Estate Settlement Procedures Act)

Federal law requiring disclosures and prohibiting kickbacks in residential mortgage transactions.

Redemption

The right of a defaulting borrower to recover the property by paying the debt — equitable redemption (before foreclosure sale) is recognized in NY.

Subordination

Voluntary acceptance of a junior priority position by a lienholder — common in refinancing where a second mortgage subordinates to a new first.

Survey

A measurement of property boundaries and improvements. Often required by lenders before closing.

Trust Deed (Deed of Trust)

An alternative to a mortgage used in some states — not commonly used in NY, which uses mortgages.

Truth in Lending Act (TILA)

Federal law requiring clear disclosure of loan terms and APR to consumers.

Underwriting

The lender’s process of evaluating a borrower’s creditworthiness and the property as collateral.

Usury

Charging interest above the legal limit. NY’s civil usury cap is generally 16% for loans to individuals.

VA Loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs. Often allows no down payment for qualifying veterans.

Writ of Execution

A court order directing the sheriff to enforce a judgment, often by selling the debtor’s property.

Commonly confused

Acceleration vs alienation clause

An acceleration clause lets the lender demand the full balance after a default. An alienation (due-on-sale) clause is triggered by the borrower selling or transferring the property, not by a missed payment.

Mortgage vs deed of trust

A mortgage involves two parties, borrower and lender, and is foreclosed judicially. A deed of trust adds a neutral trustee. New York is a mortgage state, so judicial foreclosure is the norm here.

Lien priority

Recording date usually decides priority, but property tax liens jump ahead of everything regardless of when they attached. This exception is tested constantly.

How this is tested

Keep studying

• NY Real Estate Math: Complete Guide
• The loan-to-value (LTV) formula
• How to calculate discount points
• Full NY Real Estate Glossary — all 161 terms