Closing Terms Meanings
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The costs and terms associated with a home purchase closing can be somewhat daunting to the first time home buyer or those who have not closed on many properties.
The idea here is to help those who are selling or purchasing real estate to be more familiar with the terms and costs associated.
Some of the terminology associated with a real estate closing:
- Title insurance
Title insurance is a written document on file that assures the new buyer that title to the home being purchased is free and clear to be legally transferred. Should a problem arise with the title, the title insurer pay any legal damages. A title insurance policy may either protect the home buyer, mortgage company or both.
The inspection(s) on a home purchase is meant to protect the home buyer from any hidden or otherwise damages to the home prior to closing. The home buyer typically pays for this service. The most common inspection are:
WDO (Wood destroying organisms) This is not just about termites. Wood destroying organisms includes termites, but also covers mold, mildew, wet-rot and dry rot.
4 Point A 4 Point inspection is a thorough inspection of the roof, electrical wiring and outlets, plumbing and appliances of the home.
Wind Mitigation A wind mitigation inspection verifies that the home is safe and prepared for any natural weather event that could potentially cause damage due to high winds. Roof, decking, roof to truss attachments, windows and wind coverings are some of the areas where the inspector will focus his attention on.
A fee paid to a certified person who searches the dwelling for termites and other destructive creatures
- Appraisal The appraisal is typically paid for by the home buyer and is ordered from the lending company. If a home is a cash deal, the appraisal is not required. The appraiser will complete an assessment on the value of the home so the lender can determine if the funds being delivered to the borrower are equitable to the value of the property.
- Survey The survey is another service typically paid for by the home buyer and gives the home buyer an accurate measurement of the boundaries and property lines of the property being purchased.
- Origination Fee A fee that is charged to the home buyer to create a mortgage loan. It is typically a predetermined percentage of the mortgage amount.
- Credit report The credit report is a documented report of a persons financial history. It assists the lender in determining the risk of whether a borrower is more likely or not to default on their mortgage. The higher a person’s credit rating, the more likely they are to get a lower interest rate.
- Title services The title search is a fee that covers administrative costs provided by the title company or escrow agent. It also covers costs associated with the title search and title insurance.
- Document preparation This is a fee that the lender charges to a borrower for the documents signed by the home buyer at the closing.
- Attorney, closing or settlement fee The amount charged by an attorney for witnessing and approving the mortgage loan transaction.
- Discount points The borrower pays monies up front to the lender in exchange for the lender to reduce the interest rate. One “point” is equal to 1% of the loan amount.
- Flood certification Some lenders will access a fee that covers the cost to determine whether or not the home your are purchasing falls within a flood zone. If it does, the flood insurance will be required to continue to process and approve your home loan.
- Postal/courier If you are closing remotely, then this fee covers the cost to mail your closing paperwork for signatures.
- Wire transfer fee This fee is charged to transfer funds at closing.
Any time during the process of looking for a home to purchase or any time during the process of the purchase, always ask your Realtor for clarification of anything you are not clear on or understand.
If you do not have a Realtor, feel free to call or email us and we will be more than glad to answer any questions you may have.