Unless you work directly in the title or settlement business, navigating the murky waters of title terminology is a challenge for most individuals, particularly individuals new to the home-buying experience. Even those well-seasoned in the mortgage or real estate industries often find themselves a bit puzzled on what each line on the Closing Disclosure form truly represents. Here at Linear Title & Escrow, “title terminology” and the meaning behind each individual component are our bread and butter, and we’re more than happy to break it down in a clear, obvious way.
Whether you’re an agent or just looking to better understand the settlement process, brush up on your title terms and their meanings with Part One of our handy little guide.
Know These Terms Before You Buy
- Closing Disclosure Form (CD): A standardized document used to list/itemize credits or fees owed by the buyer (to the mortgage broker or lender) when purchasing or refinancing real estate property.
- Earnest Money: A sum of money (deposit) placed toward a piece of real estate, indicating the intent of the buyer to indeed go through with the purchasing process. This amount is typically applied to the down payment or closing costs.
- Origination Charge: Fee charged by the lender to process the loan application for the purchase or refinance of a property.
- Mortgage Points: A percentage of the loan charged by the lender/broker for the purpose of originating the loan (covers their fees and commissions).
- Mortgage Discount Points/Credits: Prepaid interest remitted by the buyer at closing for the purpose of reducing the mortgage interest rate.
- Adjusted Origination Charges: The loan origination charge less the amount paid in discount points/credits.
- Transfer Taxes: The tax imposed on passing the property title from one party to another, a portion of which is expressed as a percentage of the property value. The percentage amount paid varies per state.
- Mortgage Insurance: Insurance required by brokers/lenders when down payment is less than a pre-determined percentage of the property’s purchase price/refinance amount. (See MIP and PMI terms below for further information.)
- Mortgage Interest Premium (MIP): Applies to all FHA loans and incorporated into the total monthly mortgage payment. MIP is required for the life of the loan while the loan-to-value (LTV) ratio remains greater than 90%, and for 11 years if the initial LTV ratio is 90% or less.
- Private Mortgage Insurance (PMI): Applies to conventional loans when the initial down payment is less than 20% of the property’s purchase price.
- Aggregate Adjustment: Typically, zero or a negative amount. If negative, this figure will reduce the amount the borrower must place into escrow at closing.
Check back soon for the second installment of our title terminology guide in the article, “Title Terms to Know: Part Two.”
Our professional, courteous team at Linear Title & Escrow is always ready to answer your questions regarding the settlement process for your real estate property. Contact us today at (757) 340.3440 to learn more.