Terms & definitions
The terms and phrases we use as closing agents are so familiar to us, but we realize that they can confuse others less familiar, especially first-time home buyers. We hope these definitions help.
Agreement of sale: A sales contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
Closing, or settlement: The final transaction between a buyer and seller of real property. At the closing, all agreements between buyer and seller are finalized, documents are signed and exchanged, money passes to the seller and title to the property passes to the buyer.
Closing costs: When you purchase real estate, these are the expenses you pay, over and above the cost of the property, to finalize the transaction. In some cases, the seller may offer to pay certain closing costs to attract buyers or close the sale more quickly. Closing costs vary depending on the area where the property is located.
Technically, closing costs are only those fees and expenses necessary to close a sale or a mortgage, such as document preparation, the fee for the actual closing itself and perhaps overnight delivery charges. However, the phrase has come to mean all expenses associated with a closing with the exception of the actual purchase price of the property and any lender fees. Potential expenses might include
- Preparation of closing documents
- Expenses associated with clearing title defects, such as preparation of affidavits or quit-claim deeds
- Title insurance
- Lender-required policy endorsements
- Lender closing protection Letter
- Any points (up-front interest charges) you have agreed to pay the lender
- Deed recording fees
- Mortgage recording fees
- Transfer taxes
- Transfer fees imposed by condos, homeowners associations or co-op boards
- Listing agent’s commission
- Cost of wood infestation report and clearance letter
- Cost of survey
- Cost of appraisal
- Cost of required inspections
- Escrow fees
- Document delivery charges
- Attorneys’ or settlement agent’s fees
- Pro-rated real estate taxes, insurance and/or dues
The lender must give you a good faith estimate, included in the loan estimate (LE), of your closing costs before the closing date so you’ll know approximately how much money you need to have available at closing—usually 5% to 10% of your mortgage. Many closing costs are tax deductible, so it’s a good idea to consult with your tax adviser.
Closing disclosure: This five-page document replaces the old HUD-1 form for residential transactions that involve borrowing money from a lender. The closing disclosure details all of the costs associated with your mortgage transaction. By law, this form must be received by you three days business days before your settlement and by design is in the same format as the loan estimate you were given after applying for your mortgage. Review the closing disclosure carefully upon receipt and compare it to your loan estimate to make sure all numbers meet your expectations. Contact your lender during the three-day period before closing if you have questions or find an error on the statement so it can be resolved before settlement.
Deed: A written instrument of conveyance that has been signed and delivered, by which one individual, the grantor, conveys title to real property to another individual, the grantee; also, a conveyance of land, tenements or inherited property from one individual to another.
Historically speaking, a written deed is the instrument used to convey ownership of real property. A deed must describe the land that is being conveyed, and the conveyance must include operative words of grant; however, technical terms do not need to be used. In order for title to property to pass to a new owner, the deed must be acknowledged or attested in the presence of a notary public and then recorded in the property’s county courthouse.
Deed accommodation: A service in which a new deed is drawn and recorded but no title search is conducted and no title insurance is issued. Example: A single owner of a home chooses after marriage to add his or her spouse to the deed.
Escrow: Something of value, such as a deed, stock, money or written instrument, that is put into the custody of a third person or party, where it must be retained until a contingency or condition occurs. In real estate sales, the “earnest money”—the deposit sent by the hopeful buyer with his or her offer to purchase—is held in escrow.
Mortgage: Your signature on this document means you are putting up your real estate as security for the debt you now owe. (In a title search, this would appear as a lien on the property.)
Promissory note: A written promise to pay back the amount you’re borrowing; it lists the loan’s terms, such as length of time to repay the loan, interest rate and any penalties and interest if payments are missed.
Title: The rights of ownership recognized and protected by the law. A combination of all the elements that constitute the highest legal right to own, possess, use, control, enjoy and dispose of real estate or an inheritable right or interest therein.
Warranty deed or title: This piece of paper transfers the title from the seller to the buyer. It also contains the legal description of the property and one or more title covenants.
Types of ownership
Sole owner: An individual, married or unmarried, buying a property alone has the easiest task. Title is taken as a sole owner in the individual’s name.
Joint tenancy with the right of survivorship: When choosing to take title with joint tenancy, each owner has an undivided interest in the property. When one joint tenant dies, full ownership goes to the survivor(s) in equal portions.
Tenants by the entireties: Ownership that can exist only between married people. This has an implied right of survivorship meaning that when one spouse dies, the complete ownership vests in the surviving spouse.
Tenants-in-common: When two or more individuals buy a property together as tenants-in-common, they are partners who may own unequal shares and who can sell their shares of ownership independently. There is no right of survivorship, so upon the death of a partner his or her interest passes to the heirs.
Tohickon Settlement Services
6464 Lower York Road
New Hope PA 18938
And now in Center City
One Liberty Place
1650 Market Street, Suite 3600
Philadelphia, PA 19103
And in New Jersey
372 Route 18
East Brunswick, NJ 08816