Glossary of Mortgage Terms

As a borrower makes their way through the mortgage application and closing process, a variety of terms such as bank origination fee, points, flood certification and title insurance will be thrown at them.  Although many of these terms are existentially familiar to borrowers, our experience has shown that an exact understanding of their definition is often lacking.  At ENB Mortgage, we believe an informed borrower is an empowered borrower.  As a result, we provide this guide to terms you’ll commonly hear during the home buying process to help prevent any potential surprises.

Loan discount fee/Points – a fee paid to receive a reduced rate that is based on a percentage of the overall loan amount.  For example, a fee of 1 point would equate to 1% of the amount borrowed.  It can also include fees charged based on your credit score, loan-to-value ratio and other risk-based pricing adjustments that may be required by your lender.

Bank origination/application fee/administration/documentation fee – a fee the bank charges to prepare and process your application.

Credit report – a report compiling an individual’s credit history prepared by the credit reporting agency.  This report determines your credit score and is a significant consideration in considering your loan application.

Flood certification – certificate/certification a lender obtains that confirms whether or not the property to be purchased is in a flood zone.

Flood insurance – insurance protecting homeowners from loss resulting from a flood.  It is required for homes located in a flood zone.

Tax servicing – this is needed to verify property taxes are paid or to get a copy of tax bills.

Appraisal – an unbiased professional opinion on the value of the property.  It will be required by the mortgage lender to make sure you are not paying more than the home is worth.

Inspection fees/Final inspection – fees paid to an appraiser for visiting a home under construction at various stages of the building process to confirm work has been completed.  This ensures that the work being paid for by the mortgage loan is being done.

Prepaid interest charges – charges due at closing for any daily interest that accrues on your loan between the date you close on your mortgage loan and the period covered by your first monthly mortgage payment.

Title Insurance – a form of insurance that protects home owners against loss when faced with unknown defects in their title and insures lenders’ priority, validity and enforceability of their lien.

Title endorsements – used to expand or otherwise modify the coverage of the title insurance policy to provide coverage for additional needs of the buyer or lender.

Closing protection letter – confirmation provided by the attorney/closing agent of the contract between the title insurance underwriter and the lender in which underwriter agrees to indemnify the lender for actual losses caused by certain kinds of misconduct by the attorney/closing agent.

Recording costs – a fee that covers the cost to record the mortgage, deed and any other additional documents with the county’s records office.

Attorney / Closing agent fees – fees incurred in preparation of closing that can include notary fees, overnight fees, documentation preparation fees, wire fees or settlement fees.

Property inspections – various inspections to uncover potential hazards with the home.  They include, but are not limited to, home safety, pest, termite, well, septic and mold inspections.  They are typically elective and not always required by the lender.

Pro-rated taxes – buyer reimbursement to the seller for property taxes they have paid in advance for the time you own the home during that tax cycle.

Escrow – money collected, held and distributed by the lender to cover costs associated with a home including property taxes, homeowners insurance and private mortgage insurance.  The annual cost of these items is broken down into monthly payments and collected with the mortgage payment.

Homeowner’s insurance – covers loss or damage to a home.  May also include liability coverage for accidents that occur in the home or on the property.

Private mortgage insurance (PMI)/ Mortgage insurance (MI) – protects the lender if the buyer defaults on their mortgage payments and is required when borrowing more than 80% of the lesser of the appraised value or purchase price.

Funding fees – fees charged for certain types of loans like a Federal Housing Administration Guaranteed Home Loan (FHA) or a Veterans Administration Guaranteed Home Loan (VA).

Transfer tax – a tax on the transfer of the property from the seller to the buyer.  It is typically 2% of the sales price and is split between buyer and seller but can vary by area and transaction.

 

If you have any questions about these or other terms that come up during the home buying process, please talk to one of our Mortgage Experts.

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