Glossary of Terms

There are many factors to consider when buying a home. When it comes to the closing process, it is a good idea to know the terminology that will be discussed. This can help make the situation much more comfortable and professional for all parties involved. Below are some terms that may be discussed during the closing process.

Terms

APPRAISAL

An estimate of value of property resulting from analysis of facts about the property; an opinion of value.

ANNUAL PERCENTAGE RATE (APR)

This term reflects the cost of all credit and finances as determined by the length of a year, including the interest rate, points, broker fees, and other credit charges obligated to the buyer.

BENEFICIARY

The recipient of benefits, often from a deed of trust; usually the lender.

CLOSING COSTS

Closing costs may also be referred to as transaction costs or settlement costs and may include various fees and charges associated with purchasing a home. These may include or be related to application fees, title examination, title insurance, property fees, as well as settlement documents and attorney charges. The Loan Estimate (LE) provide disclosures that will be helpful to consumers in understanding the key features, costs and risks of the mortgage loan for which they are applying.

CLOSING DISCLOSURE (CD)

Closing Disclosure form designed to provide disclosures that will be helpful to borrowers in understanding all of the costs of the transaction. This form will be given to the consumer three business days before closing.

CLOSE OF ESCROW

Though varied from state-to-state, escrow generally refers to the date the buyer becomes the legal owner and title insurance becomes effective.

COMPARABLE SALES

Sales that have similar characteristics as the subject real property, used for analysis in the appraisal. Commonly called “comps.”

CONSUMMATION/CLOSING

Occurs when the borrower becomes contractually obligated to the creditor on the loan, not, for example, when the borrower becomes contractually obligated to a seller on a real estate transaction. The point in time when a borrower becomes contractually obligated to the creditor on the loan depends on applicable State law. Consummation is not the same as close of escrow or settlement.

DEED OF TRUST

An instrument used in many states in place of a mortgage.

DEED RESTRICTIONS

Limitations in the deed to a parcel of real property that dictate certain uses that may or may not be made of the real property.

DISBURSEMENT DATE

The date the amounts are to be disbursed to a buyer and seller in a purchase transaction or the date funds are to be paid to the borrower or a third party in a transaction that is not a purchase transaction.

DOWN PAYMENT

Like many transactions involving large sums of money, the mortgage process involves a down payment - the amount a homebuyer pays in order to make up the difference between the purchase price and the mortgage amount. Some experts advise no less than 10-15% of the purchase price. An amount over 20% is often recommended to avoid having to pay for private mortgage insurance.

EARNEST MONEY DEPOSIT

Down payment made by a purchaser of real property as evidence of good faith; a deposit or partial payment.

EASEMENT

A right, privilege or interest limited to a specific purpose that one party has in the land of another.

ENDORSEMENT

As to a title insurance policy, a rider or attachment forming a part of the insurance policy expanding or limiting coverage.

ESCROWS/IMPOUNDS

A trust type of account established by lenders for the accumulation of borrower’s funds to meet periodic payments of taxes, mortgage insurance premiums and/or future insurance policy premiums, required to protect their security.

HAZARD INSURANCE

Real estate insurance protecting against fire, some natural causes, vandalism, etc., depending upon the policy. Buyer often adds liability insurance and extended coverage for personal property.

LEGAL DESCRIPTION

A description of land recognized by law, based on government surveys, spelling out the exact boundaries of the entire parcel of land. It should so thoroughly identify a parcel of land that it cannot be confused with any other.

LIEN

A form of encumbrance that usually makes a specific parcel of real property the security for the payment of a debt or discharge of an obligation. For example, judgments, taxes, mortgages, deeds of trust.

LOAN ESTIMATE (LE)

Form designed to provide disclosures that will be helpful to borrowers in understanding the key features, costs and risks of the mortgage loan for which they are applying. Initial disclosure to be given to the borrower three business days after application.

MORTGAGE

The instrument by which real property is pledged as security for repayment of a loan.

PITI

A payment that includes Principal, Interest, Taxes, and Insurance.

POWER OF ATTORNEY

A written instrument whereby a principal gives authority to an agent. The agent acting under such a grant is sometimes called an Attorney-in-Fact.

PRIVATE MORTGAGE INSURANCE (PMI)

PMI is typically required if a borrower makes a down payment less than 20 percent of the home’s value. The charge is usually included in the monthly mortgage payment and provides protection for the lender in the event of a default.

RECORDING

Process of filing documents affecting real property with the appropriate government agency as a matter of public record.

SETTLEMENT STATEMENT

Document providing a detailed breakdown of costs involved in a real estate transaction.

THREE DAY DISCLOSURE

The TILA-RESPA Rule, which went into effect October 2015, requires the creditor to deliver or place in the mail the Loan Estimate (LE) to the consumer no later than three business days after application and must deliver or place in the mail the Closing Disclosure (CD) to the consumer at least three business days prior to closing/ consummation.

TILA-RESPA INTEGRATED DISCLOSURE (TRID)

A rule issued by the Consumer Financial Protection Bureau (CFPB) that combines and integrates the disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Effective in October 2015.