Glossary of Mortgage Terms
At ENB, we believe the more you know about the borrowing process, the better your experience will be. Below are terms you’ll commonly hear as you make your way through the mortgage application and closing process.
Loan discount fee / Points is 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 / Administration / Documentation fee is a bank charge to prepare and process your application.
Credit report is a compilation of an individual’s credit history prepared by the credit reporting agency. This report determines your credit score and is a significant factor in considering your loan application.
Flood certification is obtained by the lender and confirms whether the property to be purchased is in a flood zone.
Flood insurance protects homeowners from loss resulting from a flood. It is required for homes located in a flood zone.
Tax servicing is a step needed to verify property taxes are paid or to get a copy of tax bills.
Appraisal is an unbiased professional opinion on the value of the property. It will be required by the mortgage lender to make sure you’re not paying more than the home is worth.
Inspection fee / Final inspection fee is 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 are 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 protects homeowners against loss when faced with unknown defects in their title and insures lenders’ priority, validity and enforceability of their lien.
Title endorsements are 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 is provided by the attorney/closing agent of the contract between the title insurance underwriter and the lender in which the underwriter agrees to indemnify the lender for actual losses caused by certain kinds of misconduct by the attorney/closing agent.
Recording costs cover the cost to record the mortgage, deed, and any other additional documents with the county’s records office.
Attorney / Closing agent fees are for the preparation of closing that can include notary fees, overnight fees, documentation preparation fees, wire fees, or settlement fees.
Property inspections are 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 are 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 is money collected, held, and distributed by the lender to cover costs associated with a home including property taxes, homeowner’s 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. It 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 are charged for certain types of loans like a Federal Housing Administration (FHA) Guaranteed Home Loan or a Veterans Administration (VA) Guaranteed Home Loan.
Transfer tax is 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.