A HOME BUYER’S DICTIONARY
OF FINANCIAL TERMS

Annual Percentage Rate (APR): The total cost of credit expressed as a yearly rate. Includes interest, loan discount fee (points) and other credit costs.

Application Fee: Includes appraisal and credit report fees, and Federal National Mortgage Association underwriting fee, if charged.

Appraisal Fee: Inspection of the house and neighborhood review of sale prices of comparable houses to determine value of property; may be included in mortgage insurance or application fees.

Assumable Loan: A loan transferable from seller to buyer. May require a larger down payment, but interest rate could be lower.

Assumption Fee: May be charged for processing buyer’s assumption of seller’s loan.

Buy down: Amount seller pays to lender so buyer gets lower interest rate. Inflated or nonnegotiable selling price covers buy down.

Closing/Settlement: all paperwork, financial transactions completed, and title passes from seller to buyer.

Credit Report Fee: Covers cost of buyer’s credit report; may be included in the application fee.

Document Preparation Fee: cost of preparing legal papers.

Escrow Agent: Person or company holding all documents and money until closing/settlement.

Hazard Insurance: Protects lender and buyer against loss.
Home Protection Plan: From builder of new home, to protect against faulty materials or workmanship; on a pre-owned home, first-year protection against unexpected major repair expenses.

Lender’s Inspection Fee: charge for inspection of new construction by lender or an inspector.

Loan Origination Fee: a % of the loan; covers administrative costs.

Margin: Difference between index and actual interest rate of ARMs.

Notary Fee: Cost of a licensed person authenticating execution of documents by both parties.

Points: Charged in both fixed and adjustable rate mortgages to increase mortgage yield and cover the closing costs. A “point” is 1% of the mortgage.

Recording Fee: A charge paid for recording the transfer of a property; this fee is paid to a government branch.

Reserve Accounts: funds accumulated and held by the lender in an escrow account to pay taxes, hazard insurance premiums and other assessments imposed by municipalities or subdivisions; also called prepaids, impounds or escrow funds.

Title Insurance: Often required to protect lender against loss due to undiscovered title defects. An owner’s policy costs less if bought at the same time. A Title Insurance Binder is a commitment to insure the lender against such defects.

Transfer Taxes: Taxes levied on the transfer of property or on real estate loans by state or local jurisdictions.

Veterans Administration: A federal agency that insures mortgage loans with liberal down payment requirements for honorably discharged veterans and their surviving spouse.

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