One who is trained and educated in the methods of determining the
value of property (appraised value). You will pay a fee for an
appraisal report containing an opinion as to the value of your
property and the reasoning leading to this opinion.
Credit report fee
This fee covers the cost of a credit report which shows your credit
history. The lender uses the information in a credit report to
assess your credit worthiness.
The inability to pay monthly mortgage payments in a timely manner or
to otherwise meet the mortgage terms.
Failure of a borrower to make timely mortgage payments under a loan
The portion of a home's purchase price that is paid in cash and is
not part of the mortgage loan.
Earnest Money Deposit
Money you will put down to show that you are serious about
purchasing the home. It often becomes part of the down payment if
the offer is accepted, is returned if the offer is rejected, or may
be forfeited if you do not follow through with the deal.
An impound account in which a portion of your monthly mortgage
payment is deposited to cover annual charges for homeowner's
insurance, mortgage insurance (if applicable), and property taxes.
A person or entity holding documents and funds in a transfer of real
property, acting for both parties pursuant to instructions.
Typically the agent is a person (often an attorney), escrow company
or title company, depending on local practices.
Flood Certification Fee
A fee for the assessment of your property to determine if it is
located in a flood prone area.
A legal process in which mortgaged property is sold to pay the loan
of the defaulting borrowers.
Good Faith Estimate (GFE)
An estimate of the settlement charges you are likely to incur; it
also contains other information about the loan.
Government Recording and Transfer Charges
Fees for legally recording your deed and mortgage. These fees may be
paid by you or by the seller depending upon the terms of the sales
an inspection of the mechanical, electrical, and structural aspects
of your home. You will pay a fee for this inspection, and the
inspector will provide you a written report evaluating the condition
of the home.
of the home.
Homeowner's Insurance or Home Hazard Insurance
An insurance policy that protects your home and your possessions
inside from serious loss, such as theft or fire. This insurance is
usually required by all lenders to protect their investment and must
be obtained before closing on your loan.
HUD-1 Settlement Statement
A statement that itemizes the services provided to you and the fees
charged for those services. This form is filled out by the person
who will conduct the settlement. You can ask to see your settlement
statement at least one day prior to your settlement.
fee charged by the lender for the use of its money.
The charge by the lender for borrowing money expressed as a
Lender Inspection Fees
This charge covers inspections, often of newly constructed housing,
made by employees of your lender or by an outside inspector.
Loan to value (LTV) ratio
A percentage calculated by dividing the amount to be borrowed by the
price or appraised value of the home to be purchased (whichever is
less). The loan to value ratio is used to qualify borrowers for a
mortgage, and the higher the LTV, the tighter the qualification
guidelines for certain mortgage programs become. Low loan to value
ratios are considered below 80%, and carry lower rates since
borrowers are lower risk.
The transfer of an interest in property to a lender as a security
for a debt. This interest may be transferred with a Deed of Trust in
A fee charged to the borrower by the loan originator for making a
Any service involved in the creation of a mortgage loan, including
but not limited to the taking of the loan application, loan
processing, and the underwriting and funding of loan, and the
processing and administrative services required to perform these
A scenario in which monthly mortgage payments on an adjustable rate
mortgage (ARM) rise so high that the borrower may not be able to
afford the payments.
PITI: Principal, Interest, Taxes and Insurance
The four elements of a monthly mortgage payment; payments of
principal and interest go directly towards repaying the loan while
the portion that covers taxes and insurance goes into an escrow
account to cover the fees when they are due.
An inspection for termites or other pest infestations of your home.
This inspection is frequently required by your lender.
Amount of money paid to reduce the interest rate on a loan. A point
is usually equal to 1% of the loan amount.
Lenders often require the prepayment of items such as insurance
premiums for private mortgage insurance, homeowner's insurance, and
real estate taxes.
A fee charged if the mortgage loan is paid before the scheduled due
Private Mortgage Insurance (PMI)
Insurance that protects your lender if you default on your loan.
With conventional loans, mortgage insurance is usually required if
you do not make a down payment of at least 20% of your home's
appraised value. Your lender may require payment of your first
year's mortgage insurance premium or a lump sum premium that covers
the life of the loan in advance at settlement. The same insurance
protection on an FHA loan is called Mortgage Insurance Premium
Recording and Transfer Charges
These charges include fees paid to the local government for filing
official records of a real-estate transaction.
The contract signed by a buyer and the seller stating the terms and
conditions under which a property will be sold. It may also be
called an "Agreement of Sale" or "Purchase Contract."
The time at which the property is formally sold and transferred from
the seller to the buyer. It is at this time that the borrower takes
on the loan obligation, pays all closing costs and receives title
from the seller.
In some states, a settlement agent, or closing agent, handles the
real estate transaction when you buy or sell a home. It may also be
an attorney or a title agent. He or she oversees all legal
documents, fee payments, and other details of transferring the
property to ensure that the conditions of the contract have been met
and appropriate real estate taxes have been paid.
Settlement Costs/Closing Costs
The customary costs above and beyond the sales price of the property
that must be paid to cover the transfer of ownership at closing;
these costs generally vary by geographic location and are typically
detailed to the borrower at the time the GFE is given.
A fee for obtaining a drawing of your property showing the location
of the lot, any structures, and any encroachments. The survey fee is
usually paid by the borrower.
Title Service Fees
Title service fees include charges for title search and title
insurance if required. This fee also includes the services of a
title or settlement agent.
Insurance that protects your lender against any title dispute that
may arise over your property. Through a title search, the lender
verifies who the actual property-owners are and whether the property
is free of liens. The title search company then issues title
insurance which protects the title of the property against any
unpaid mortgages and judgments. In case a claim is made against the
property, the title insurance provides legal protection and pays for
court fees and related costs. You may also purchase Owner's title
insurance which protects you as the homeowner.
Official proof of payment of taxes due provided at the time of
transfer of property title by the state or local government.
Tax Service Fee
This fee covers the cost of your lender engaging a third party to
monitor and handle the payment of your property tax bills. This is
done to ensure that your tax payments are made on time and to
prevent tax liens from occurring.
the maximum amount by which the charges for a category or categories
of settlement cost may exceed the amount of the estimate for such
category or categories on a good faith estimate. When the originator
selects and identifies the provider of services, these charges may
only increase 10% in the aggregate. If the borrower selects a
provider that is not on the written list provided by the loan
originator, the lender is not subject to any tolerance restrictions
for that service.