.
.

Closing Cost Definitions

Thank you for choosing Regions Mortgage to assist you with your mortgage lending needs! Following you will find key definitions and terms that will be helpful during your loan closing. Please remember, if you have any questions during your loan closing or do not understand the information being reviewed with you – it is important that you ask questions of your Mortgage Loan Originator or Settlement /Closing Agent before finalizing your loan closing.

Acquisition Costs
    Costs of acquiring property other than purchase price: escrow fees, title insurance, lenders fees, etc.
Amortization
    Repayment of mortgage debt with periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.
Annual Percentage Rate (APR)
    A term defined in the federal Truth-in-Lending Act (15 USC 1606), which expresses on an annualized basis the charges imposed on the borrower to obtain a loan (defined in the Act as “finance charges”), including interest, discount and other costs.
Certificate Of Title
    In areas where attorneys examine abstractor chains of title, a written opinion, executed by the examining attorney, stating that title is vested as stated in the abstract.
Chain of Title
    A chronological list of recorded instruments tracing title to land, from the original owner to the present owner.
Classified Property Tax
    Property tax which varies in rate depending on the use (zoning classification) of the property.
Clear Title
    Title to property which is free from liens, defects or other encumbrances.

Closing

    (1) In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed. (2) A selling term meaning the point at which the client or customer is asked to agree to the sale or purchase and sign the contract. (3) The final call in a metes and bounds legal description which "closes" the boundaries of the property.
Closing Costs
    Expenses, beyond the selling price, such as loan fees, title fees, etc. Paid when documents are executed and/or recorded and the sale is complete.
Closing Statement
    A financial disclosure giving an account of all funds received and expected at closing, including escrow deposits for taxes, hazard insurance, and mortgage insurance. All FHA, VA and most conventionally financed loans use a uniform settlement statement called the Closing Disclosure.
Cloud On Title
    An invalid encumbrance on real property, which, if valid, would affect the rights of the owner. For example: A sells Lot 1, tract 1, to B. The deed is mistakenly drawn to read Lot 2 by the recording of the erroneous deed. The cloud may be removed by quit claim deed, or, if necessary, by court action.
Conditional Sales Contract
    A sale in which the title to property or goods remains with the seller until the purchaser has fulfilled the terms of the contract, usually payment in full.
Conveyance
    The transfer of title or an interest in real property by means of a written instrument such as a deed of trust.
Deed
    Actually, any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale.
Deed Of Trust
    An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor) in favor of the lender (beneficiary), and reconveyed upon payment in full.
Discount Points
    The fee associated with the note rate for your loan. The more discount points you pay, the lower the rate you can buy. The fewer you pay, the higher your rate.
Documentary Transfer Tax
    The tax, based on sales price, less loans which are being assumed, which is charged by the city and/or county on the transfer of real property.
Easement
    A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another. It is either for the benefit of land (appurtenant), such as right to cross A to get to B or "in gross," such as a public utility easement.
Easement of Necessity
    An easement granted by a court when it is determined that said easement is absolutely necessary for the use and enjoyment of the land. Commonly given to landlocked parcels.
Egress
    A term concerning a right to come and go across the land (public or private) of another. Usually part of the term ingress and egress.
Encumbrance, Incumbrance
    A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.
Equity
    The value of a person's interest in real property after all liens and charges have been deducted.
Equity Line Of Credit
    A combination of a line of credit and equity loan. A maximum loan amount is established based on credit and equity. A mortgage (deed of trust) is recorded against the potential borrower's property for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the amount of the mortgage.
Escalation Clause
    A clause in a lease providing for an increased rental at a future time. May be accomplished by several types of clauses, such as (1) Fixed increase - A clause which calls for a definite, periodic rental increase. (2) Cost of living - A clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes. (3) Direct expense - The rent is adjusted according to changes in the expenses of the property paid by the lessor, such as tax increases, increased maintenance costs, etc.
Escrow
    Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event, modernly, in some states, all instruments necessary to the sale (including funds) are delivered to a third (neutral) party, with instructions as to their use.
Fee
    (1) Modernly, and not in strict legal terms, synonymous with fee simple or "ownership." (2) A charge made by a landlord to a tenant, which is not refundable. For example: A cleaning deposit would be refunded if the tenant left the rented property reasonably clean. A cleaning fee would be a charge by the landlord for cleaning the rented property and would not be refunded regardless of the condition of the property.
Fee Simple
    An estate under which the owner owns a contract interest in the property and is entitled to the unrestricted enjoyment of the property, including the right to dispose property.
Finance Charge
    A total of all costs imposed directly or indirectly by the creditor and payable either directly or indirectly by the customer, as defined by the Federal Truth-In-Lending laws.
First Mortgage
    A mortgage on property that is superior in position to any other mortgage.
Flood Insurance
    Insurance that reimburses the policyholder for damage to property caused by the peril of flood.
Loan Estimate
    A document which tells borrower the approximate costs they will pay at or before settlement, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker must deliver or mail the Loan Estimate to the applicant within three business days after the application is received.
Hazard Insurance
    Insurance coverage which provides compensation to the insured in case of a property loss or damage.
Home Mortgage Disclosure Act (HMDA)
    Federal legislation which requires certain types of lenders to compile and disclose data on where their mortgage and home improvement loans are being made.
Homestead
    The dwelling (house and contiguous land) of the head of a family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of creditors. Property tax exemptions (for all or part of the tax) are also available in some states. Statutory requirements to establish a homestead may include a formal declaration to be recorded.
Home Warranty Insurance
    Private insurance insuring a buyer against defects (usually in plumbing, heating, and electrical) in the home he has purchased. The period of insurance varies and both new and used homes may be insured.
Impound Account (Escrow Account)
    Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.
Interest Rate Cap
    The maximum interest rate increase of an Adjustable Mortgage Loan. An interest rate cap places a limit on the amount your interest rate can increase. Interest caps come in two versions:
    1. Periodic caps, which limit the interest rate increase from one adjustment period to the next; and
    2. Overall caps, which limit the interest rate increase over the life of a loan.
IRS 4506/Request for Copy of Tax Forms
    IRS Form required by lenders. This form allows the lender to pull tax returns on the borrower directly from the IRS, usually accomplished as a quality control check on a certain number of cases.
Joint Tenancy
    An undivided interest in property, taken by two or more joint tenants. The interests must be equal, accruing under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.
Late Charge
    A penalty for failure to pay an installment payment on time. Usually not allowed as interest for tax deductions. May or may not be included as usury. If not, the amount of late charge is either set by statute or must be "reasonable."
Lien
    A recorded document which claims an interest in real property as security for a debt owed. Such liability may be created by contract, such as a deed of trust, or by a court judgment.
Lien Waiver (Waiver Of Liens)
    For our purposes, a waiver of mechanic's lien rights, signed by subcontractors so that the owner or general contractor can receive a draw on a construction loan.

Loan to Value Ratio
    The ratio of the mortgage loan's principal to the property's appraised value or its sales price, whichever is lower.
Mechanic's Lien
    A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.
Monthly Payment
    The monthly payment of principal and interest collected by mortgage lenders.  May also include escrow items for taxes or insurance and thereby called the housing payment.
Mortgagee
    The party lending the money and receiving the mortgage. Some states treat the mortgagee as the "legal" owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, the mortgagor being the owner. The latter is the more modern and accepted view.
Mortgage Insurance
    Insurance written by a private mortgage insurance company (referred to as PIC) protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price. The Federal Government writes this form of insurance through the FHA and the VA.
Mortgage Servicing
    Controlling the necessary duties of a mortgagee, such as collecting payments, releasing the lien upon payment in full, foreclosing if in default, and making sure the taxes are paid, insurance is in force, etc. Servicing may be done by the lender or a company acting for the lender, for a servicing fee.
Notarization
    The certification by a Notary Public that a person signing a document has been properly identified. Notarization does not certify the content of a document, only validity of signature.
Notice Of Cessation
    A notice stating that work has stopped on a construction project. Done to accelerate the period for filing a mechanic's lien.
Origination Fee
    The fee that the lender charges to originate the loan, this fee is typically 1 point.
Payment Cap
    A maximum amount for a payment under an Adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.
Payoff
    The payment in full of an existing loan or other lien.
Payoff Letter
    A statement detailing the unpaid principal balance, accrued interest, outstanding late charges, legal fees, and all other amounts necessary to pay off the lender in full.
PITI
    Refers to principal, interest, taxes and insurance,the four major components of a usual monthly mortgage payment.
Point
    One percent. When referring to mortgages or deeds of trust, the term is used to describe the percentage of discount rather than interest (for which the word "percent" is used). The points are paid by the seller in FHA and VA insured loans, and by either buyer or seller (or both) in conventional loans.
Power of Attorney
    An authority by which one person (principal) enables another (attorney in fact) to act for him. (1) General power - Authorizes sale, mortgaging, etc. of all property of the principal. Invalid in some jurisdictions. (2) Special power - Specifies property, buyers, price and terms. How specific it must be varies in each state.
Prepaid Items
    Costs paid at closing for taxes, interest, and insurance.
Prepaid Interest
    Mortgage Interest that is paid in advance of when it is due to obtain tax advantages.
Principal
    The sum of money outstanding upon which interest is payable. Also refers to one who is served by an agent. Private Mortgage Insurance (PMI): Insurance written by a private mortgage insurance company protecting the mortgage lender against loss occasioned by a mortgage default and foreclosure.
Private Mortgage Insurance
    Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a governmental agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.
Property Inspection
    The physical review/evaluation of a property to determine its current structural condition, to report any deferred maintenance and/or environmental problems, and to verify leasing status.
Rate Index
    An index used to adjust the interest rate of an adjustable mortgage loan. For example: the change in U.S. Treasury securities (T-Bills) with a 1 year maturity. The weekly average yield on said securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the "index" for the change in the specific Adjustable Mortgage Loan.
Recordation
    Involves filing for record in the office of the county recorder for the purpose of giving constructive notice of title, claim or interest in real property.
Recordation Fees
    Fees charged by a local government to record the documents of a real estate transaction.
Refinance
    (1) The renewing of an existing loan with the same borrower and lender. (2) A loan on the same property by either the same lender or borrower. (3) The selling of loans by the original lender.
Regulation B
    Federal Reserve regulation prohibiting discrimination against consumer credit applicants, and establishing guidelines for collecting and evaluating credit information.
Regulation Z
    Regulations written by the Federal Reserve Board to implement the Truth-In-Lending Act, requiring full written disclosure of the credit portion of a purchase, including the annual percentage rate.
Settlement Cost
    Money paid by borrowers and sellers to effect the closing of a mortgage loan, including payments for title insurance, survey, attorney fees, and such prepaid items as taxes and insurance escrow.
Subordination Agreement
    An agreement under which a prior or superior lien is made inferior or subject to an otherwise junior lien.
Survey
    The measurement of the boundaries of a parcel of land, it's area, and sometimes its topography.
Tenancy In Common
    An undivided ownership in real estate by two or more persons. The interests need not be equal. and, in the event of the death of one of the owners, no right of survivorship in the other owners exists.
Tenant At Will
    One who holds possession of premises by permission of the owner or landlord, but without agreement for a fixed term of possession.
Title Policy
    A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalid title in the borrower, or loss caused by invalid title in the borrower, or loss of priority of the mortgage or deed of trust.
Transfer Tax
    State tax on the transfer of real property. Based on purchase price or money changing hands. Check statutes for each state. Also called documentary transfer tax.
Treasury Bills
    Interest bearing U.S. Government obligations sold at a weekly sale. The change in interest rates paid on these obligations is frequently used as the Rate Index of Adjustable Mortgage Loans.
Truth-In-Lending Act (TILA)
    Federal law which requires a truth-in-lending statement to be disclosed for consumer loans. This statement would include disclosure of the annual percentage rate, or APR, as well as other facets of the mortgage program. The law also requires the right of recission period which follows the closings of refinances.
Uniform Settlement Statement
    The Standard HUD Form 1 required to be given to the borrower, lender and seller at, or prior to, settlement.
Universal Residential Appraisal Report (URAR)
    The appraisal form which is utilized by appraisers of residential properties to estimate the value or properties to be financed with FHA, VA and conventional mortgages.