The ABC’s of Home-Buying.

Take a look at our glossary to help you get going.

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Click on a term below to see the definition.  Please note that SimplyTitle is not a law firm, and this does not constitute legal advice.  These sample definitions are provided for your convenience only.  If you have any questions concerning the legal effect of any of these terms, we recommend that you consider consulting with an attorney.

Title, Title Insurance, Closing and Escrow Terms

This fee is paid to the attorney who prepares and reviews all of the closing documents on your behalf.

When someone asserts an interest in your property.  For example, they might say that they are the true owner of the property you paid for or, at least, have some right to use it (such as passing through to get to another piece of land).  These are just a couple examples of many possible scenarios that might adversely affect your ownership of the property.  You should carefully review the terms of the Owner’s Title Insurance Policy to make sure you understand the different facts that might give rise to a claim.
The last step in buying your home. On the closing date, the ownership of the property being sold is transferred to you (the buyer). There are some nuances in different states. Ultimately, the title deed is delivered to the buyer, the title is transferred, the seller is paid the purchase price, closing costs and fees are paid, and title insurance policies are issued (although the policies often may be issued within a short time following the closing).
Yes, there are fees associated with buying a home. Closing costs typically run 3-5% of the purchase price of the home, not including your down payment. The specific fees related to the title company may include, but are not limited to: (a) attorney fees, (b) recording fees, (c) Owner’s Title Insurance Policy premium, and (d) Lender’s Title Insurance Policy premium.  These fees may be incurred by either the buyer or seller- it depends on a few different factors.
As the buyer of the property, you should receive a Closing Disclosure document at least three business days before your closing. This document, provided by your lender, should look similar to the Loan Estimate that was provided to you by your lender three business days after applying for a mortgage. The Closing Disclosure provides you a breakdown of your loan terms and the respective closing costs associated with your loan.
A fee paid to the title company, title/closing agent or escrow agent for conducting your closing.
Anything that is wrong with title to your property. It could be the result of a stolen identity, forged documents used in a previous sale, or plain old human error in a county recorder’s office, to name a few. A title with a defect is considered irregular or faulty such that it contains a blemish, imperfection or some sort of deficiency.
A claim against the property by someone other than the owner. Examples of encumbrances include, but are not limited to, mortgages, mechanics’ liens, easements or other recorded restrictions on the use of property.
An account set up by your lender or a company that is servicing your mortgage on behalf of the lender to hold funds needed to pay property-related expenses, such as homeowners insurance, property taxes, or any other applicable expenses.
A person (sometimes an attorney, sometimes the title agent, and in some states an agent of a company focused specifically on escrow) responsible for following all of the escrow instructions from the buyer and seller, as well as the handling of documents and payments associated with the loan. The escrow agent’s responsibilities include, but are not limited to, ensuring that all relevant payments are made to and from the escrow account and that necessary documents are received on time.
Insurance that protects against physical damage to your property. In many cases the first year’s premium is paid at closing.
This fee is paid to the lender’s attorney for preparing and reviewing all of the loan and other closing documents on behalf of the lender.
A form of title insurance that insures the lender that you own the home and that the lender’s mortgage is a valid lien on the property. The cost of a lender’s title policy is paid to the title company and is typically paid by the buyer/borrower.
An encumbrance on real property securing a monetary obligation.  A lien is basically a way for a lender or other party that is owed money to take an interest in real property as collateral for repayment of the debt. Say, for example, that you borrowed money for a construction loan to renovate your home, and the lender required you to sign a mortgage on your home. The mortgage creates a lien on your home, and if you fail to pay the loan back, the lender can force you to sell the home to pay them back.
A report that provides disclosure of specific natural hazards that may affect your property, such as earthquakes, floods or wildfires.  May be required in some states.
A person who is licensed to attest to the fact that the persons named in documents that must be recorded did, in fact, sign them.

A form of title insurance that protects you, the new owner, in the event that someone challenges the fact that you own the home or states they have some claim of ownership or right to use the property, or if some other title defect adversely affects your title. The good news is the policy is good for as long as you or your heirs own the property.  The cost of an owner’s title insurance policy is paid to the title company.  The borrower or seller might pay for this depending on the state and sometimes the county.

Quick Heads Up: While you will see and hear that an owner’s title insurance policy is “optional,” you should do the research to determine how important it is.   This is likely to be the biggest investment you have ever made, so you should protect that investment.  You bought car insurance, right?
In Florida, the cost of premium for Owner’s Title Insurance Policy is $5.75 per thousand dollars for the first $100,000 of liability, plus $5.00 per thousand dollars for liability from $100,000 to $1 million (plus additional amounts as set for by the state of Florida for liability amounts greater than $1 million). This typically averages to approximately 0.5% of the home’s purchase price for the Owner’s Title Insurance Policy, although that may vary. This cost is in addition to any fees that the buyer may owe to the title company for closing services and title searches. SimplyTitle rebates a portion of this to you in Florida by utilizing what is known as the Butler Rebate.
This tax rate is dependent on the county where your real property is located. Property taxes due for the current year are typically prorated between the buyer and seller at the closing, with the seller paying taxes due before closing and the buyer paying taxes due after closing.
These fees are paid to the local government official responsible for maintaining public records for recording various closing and loan documents.  These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for recording the new title deed and mortgage.
Your right to own, possess, use, control, enjoy and dispose of real property. The term may also refer to the legal document that demonstrates your ownership of real property, which is also often referred to as a title deed.
Typically a licensed person (sometimes an attorney) who is responsible for overseeing the closing process, which includes, but is not limited to: (a) the title search and examination, (b) facilitation of the closing process, (c) filing and recording the required legal documents, and (d) issuance of title insurance.
Acts as an agent for the title insurance underwriter and, to a limited extent, a buyer or seller. The title company (a) reviews the title to ensure that is clear and does not have any liens or encumbrances, (b) facilitates the closing, (c) files and records the required legal documents, and (d) issues the title insurance policies. The title company is key to coordinating the interests of all parties to the transaction, including the buyer, the seller, the mortgage lender and the real estate agent, and acts as an impartial intermediary for all of those parties.

Legal document that is used to transfer title to real property and that confirms your ownership of real property. The deed contains a legal description of the property as well.

Quick Heads Up: You might consider keeping this in a safe place

An agreement to compensate the party named in the policy (you or your lender) against loss resulting from someone having a claim against your property or other covered title defects.
A company that issues the title insurance policy, which is typically sold through a title agent that is appointed by the underwriter. The underwriter is the company that assumes the liability and pays expenses incurred in the event that you need to legally defend your property against any previous claims (not future claims). You are covered for losses up to the value of your policy.
This tax is collected in some localities whenever real property is transferred or a mortgage loan is made. The taxes can be significant and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well.

Lender and Mortgage Specific Terms

This is a key part of your mortgage process. Your lender will require you to obtain an appraisal on the home you intend to purchase. A licensed appraiser will come and estimate the fair market value of the home based on comparable homes (typically homes sold in the neighborhood).
Quick Heads Up: If the appraisal amount of the home is less than the offer you present to the seller, you may not be approved for the loan. Why?  Because the lender does not want to lend you money on something that is not worth as much as you are willing to pay. Let’s be honest, you don’t want to do this either. Your real estate agent can typically do the research to avoid running into this hiccup.

A report that typically combines credit information from the three main credit bureaus. This report is used to determine your credit rating and credit history.

Quick Heads Up: Unfortunately, you cannot provide a credit report that you obtain from the internet.
Discount Fees/Points are prepaid finance charges. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan.
Hang in there, this is not that complex. Fixed rate mortgages have an interest rate that is set throughout the life of the loan. Most fixed rate mortgages are for 30 years, but a 15-year term is also common. An adjustable rate mortgage is just that. The interest rate adjusts or is variable after a certain number of years. Typically, you will see 5-, 7- or 10-year adjustable rate mortgages. So, in the case of a 5-year adjustable rate mortgage, the interest rate is set for the first 5 years then adjusts.
The entity who loans the funds to the buyer to purchase real property.
If you are borrowing money (i.e. applying for a mortgage), the mortgage company or your lender will provide this document to you within three business days of applying for a mortgage. The Loan Estimate is a detailed breakdown of the various fees/closing costs (including your title insurance policies) that you will be responsible for at closing. It will also include the terms of the loan like the amount borrowed, interest rate and whether or not there are any prepayment penalties. The good news is this same form is used by all lenders, so you can compare lenders to other lenders.
A ratio that lenders examine when determining whether to approve a mortgage. The ratio compares the loan amount to the value of the house. Lenders typically like to lend no more than 80% loan-to-value. Note, there are options if you are unable to come up with a down payment of 20% of the purchase price of the home. Check with your lender or mortgage broker for the various options.
If you do not pay 20% of the property’s value as a down payment, then your lender may require you to purchase private mortgage insurance. PMI rates generally range from .32% to 1.2% of the principal balance per year.

If you are reading this, make sure you read Pre-Approved/Pre-Approval definition.  Please note that they are very different. Simply said, this is just a very high-level look to see if you are even eligible for a mortgage. It’s a quick process of looking at your income and expenses in order to estimate the amount of money the lender is willing to lend you. Basically, the lender is looking to see if you have enough money to pay the mortgage.  However, make no mistake, a pre-qualification does NOT mean you are approved.

Quick Heads Up: Pre-Qualified DOES NOT EQUAL Pre-Approved.

If you are reading this, make sure you read Pre-Qualified/Pre-Qualification definition. Please be mindful that they are two different things. This is an assessment of you by the lender to determine if you qualify for a loan. Basically, the lender is going to look at certain things, such as your income, expenses, credit reports and your credit score. With this process, you are going to complete more paperwork, such as a mortgage application. With this information, the lender then determines the specific mortgage amount for which you are approved.

Quick Heads Up: With a Pre-Approval letter, you put yourself in a better position with a potential seller because they know you are serious and can afford the house they are looking to sell.
You will owe your lender interest for the number of days that your mortgage is outstanding during the first month of ownership. For example, if you were to close on the fifteenth day of April, you would owe the lender 15 days of interest. The daily amount of interest is based on your interest rate. If your schedule allows, try to close at the end of the month in which you purchase, and you can minimize pre-paid interest costs.
Fee paid to your lender to reimburse it for the cost to process the information on your loan application.
Fee paid to your lender to reimburse it for the cost of researching and determining whether you qualify for the loan.

General Home Buying for Resale Homes

There are usually two real estate agents involved when you buy a home: the “buyer’s agent,” who represents you, and the “listing agent,” who represents the home seller. In some cases you might have one agent representing both sides.
Quick Heads Up: Really understand which real estate agents are familiar with the market in which you are interested, and understand their commission structure, regardless of whether you are the buyer or seller.
A cash deposit made to the seller to secure an offer to buy the property. This amount maybe forfeited if the buyer does not move forward with the purchase.

An insurance policy that protects you against the cost of unexpected failures to the major systems and appliances in your home.

Quick Heads Up: There are a number of home warranty companies out there. Make sure you find a reputable company.

Once you have made an offer on an existing or older home, you should have it inspected (this is not necessary for brand new construction). It is the inspector’s job to inspect the entire house and identify any systems or components that are not working or broken. Examples of items subject to inspection include the roof, plumbing, electrical system, foundation, walls, heating/air conditioning system, appliances, etc.  The costs range from $400-$900, depending on where you live.

Quick Heads Up: Find a good inspector. If your inspection reveals any problems with the home, you might consider negotiating a reduction in price and/or requiring that the problem be fixed before you move in.
When you find your dream home you will make an offer. The seller may counter and negotiations might start – just be prepared.

This is the total dollar amount of the real estate broker’s sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home.

Quick Heads Up: Really understand which real estate agents are familiar with the market in which you are interested, and understand their commission structure, regardless of whether you are the buyer or seller.
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