Glossary of Closing Cost Terms

The mortgage world has unique terms and calculations that we feel every First Time Home Buyer should be aware of as well as the context that most mortgage terms might be used. Here are the most common terms you should know if you’re seeking down payment assistance.

A Cloud on title is a deal stopper!

A cloud on title is defined as an actual or apparent outstanding claim on the title to real property. "Clouds" can include old mortgages or deeds of trust with no recording showing the secured debt was paid off, a failure to properly transfer all interests in the real property (such as mineral rights) to a former owner, a previous deed which was improperly written or signed, an unresolved legal debt or levy by a creditor or a taxing authority, or some other doubtful link in the chain of title. A few of the examples of Clouds on Title would be: Insufficient Deed: The form and/or content of a deed are insufficient to actually convey the property. This may result in the conveyance being nullified. Marriage: A single person is selling or mortgaging property, but the title search reveals there are two persons on the deed and it says they are married. Death: The children of a widowed woman, who is now deceased, mortgaged the property, but the title search reveals there is no recorded will or deed from the decedent's estate to these children. Money liens: A man who had purchased the property before marriage thereafter mortgaged the property. He then gets married. Florida recognizes a spouse's interest in this property if it is classified as homestead property. Mechanic's lien: An owner fails to pay the contractor who built the pool in the backyard. This contractor can place a lien on the property for his/her unpaid labor. Tax liens: The owner failed to pay his/her taxes and a certificate was sold in the amount of the unpaid taxes. Often the "cloud on title" can be removed by the institution of a quiet title action, by the execution and recordation of a valid deed, or by the recordation of a document proving a debt has been paid. Open Permits: If theres an open permit for any type of construction such as HVAC, Plumbing, pools etc... Those permits will need to be closed by the Seller before the property can be financed. If you do not know the cloud on title exists, you purchase the property subject to this cloud.


Acceleration Clause

A contract provision that allows a lender to require a borrower to repay all or part of an outstanding loan if certain requirements are not met. An acceleration clause or demand note outlines the reasons that the lender can demand loan repayment. Also known as "acceleration covenant".


acre

Because an acre is a measure of area, not length, it is defined in square feet. An acre can be of any shape—a rectangle, a triangle, a circle, or even a star—so long as its area is exactly 43,560 square feet. The most standard shape for an acre is one furlong by one chain, or 660 feet by 66 feet.


Ad Valorem Tax

The phrase ad valorem is Latin for "according to value". Property taxes, property owners have their property assessed on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax, which is levied on the owner by his or her municipality.


Addendum

The addendum becomes part of the legal contract. In real estate purchase agreements, an addendum is a document containing any changes or modifications negotiated in the original lease or purchase


Adjustable Rate Mortgage

An ARM, short for "adjustable rate mortgage", is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index. ARMs are contrasted with fixed-rate mortgages (FRMs) on which the quoted rate holds for the entire life of the mortgage.


ALTA (American Land Title Association) Closing Disclosure Statements

An ALTA settlement statement, also known as the ALTA Settlement Statement or ALTA HUD-1, is a document used in real estate transactions, particularly for residential or commercial property sales in the United States. ALTA stands for the American Land Title Association, a national association that represents title insurance companies and professionals in the real estate industry.

The ALTA settlement statement is a standardized form that outlines the financial details of a real estate transaction. It typically includes information such as:

1. Buyer's and seller's information: names and contact details of the buyer and seller.

2. Property information: description of the property being sold, including its address and legal description.

3. Transaction details: the sale price, loan amount, and any adjustments or credits.

4. Closing costs: A breakdown of all costs associated with the transaction, including but not limited to:

  • Title insurance premiums
  • Recording fees
  • Escrow fees
  • Attorney fees
  • Real estate agent commissions
  • Prorated property taxes
  • Homeowners association dues
  • 5. Funds at Closing: This section details the amount of money the buyer must bring to the closing, as well as any funds that will be disbursed to the seller.

    6. Loan information: If the transaction involves a mortgage loan, this section provides details about the loan, including the interest rate, loan amount, and other terms.

    7. Summary of the transaction: A summary of the total amounts due from the buyer and payable to the seller at closing.

    The ALTA settlement statement is typically prepared by the title company or closing agent and is provided to both the buyer and seller before the closing of the real estate transaction. It helps ensure transparency and clarity regarding the financial aspects of the transaction for all parties involved.

    ALTA (American Land Title Association) Closing Disclosure Statements

    This form has replaced the HUD settlement statement. With every loan closing the borrower receives a detailed breakdown of closing costs.


    Amortization Table

    An amortization schedule is a table detailing each periodic payment on an amortizing loan (typically a mortgage), refers to the process of paying off a debt (often from a loan or mortgage) over time through regular pre calculated payments.


    Appraisal Fee

    The appraisal fee for a residence can vary depending on several factors, including the location of the property, the complexity of the appraisal, and the appraiser's experience. On average, as of my last knowledge update in January 2022, you can expect to pay anywhere from $300 to $600 or more for a residential appraisal in the United States. Here are some factors that can influence the cost of an appraisal for a residence:

    1. Property type: The type of residence being appraised can affect the cost. Single-family homes are generally less expensive to appraise than multi-unit properties, such as duplexes or apartment buildings.

    2. Property value: The higher the value of the property, the more the appraisal may cost. Luxury homes or properties in high-value markets often require more in-depth appraisals.

    3. Location: Appraisal fees can vary significantly by region and even within different neighborhoods. Properties in rural areas or areas with limited access to appraisers may have higher fees.

    4. Complexity: If the property has unique features, extensive renovations, or is in poor condition, the appraisal may require more time and effort, leading to a higher fee.

    5. Appraiser's experience: More experienced and credentialed appraisers may charge higher fees for their services.

    6. Purpose of the appraisal: The purpose of the appraisal can also affect the cost. Appraisals for mortgage financing, tax assessments, divorce settlements, or estate planning may have different requirements and, therefore, different fees.


    Appraisal Fee

    This is the charge to obtain a statement of property value for the lender, so that the lender can confirm if the property value is sufficient to secure the mortgage loan.


    APR (Annual Percentage Rate)

    The annual percentage rate is the cost of borrowing money from the lender, including certain loan closing fees. The APR is shown as a percentage of your mortgage amount, including certain items in the loan closing. The APR adds the interest rate and certain APR items (fees) that are associated with the loan closing. The APR is NOT the interest rate that is charged over the life of the loan. That is called the loan interest rate. Example: If the seller pays all the buyer's loan closing costs, the APR is exactly what the interest rate is on the mortgage. APR items on a mortgage loan include the following loan closing fees: The following are all examples of charges to close a loan. Keep in mind that this entire list is not what you would see at a typical loan closing.

    Possible Fees Included in APR Finance Charges: