Closing glossary

Closing and title terms, in plain language.

Quick definitions for the words you will hear between contract and closing. Meanings can vary slightly by state and contract, so ask your agent or title officer about your deal.

Appraisal

An estimate of a home's value by a licensed appraiser, ordered by the lender to confirm the home is worth the loan amount.

Closing costs

Fees and prepaid items paid when a home sale closes, such as lender fees, title and settlement fees, recording fees and escrow deposits.

Closing Disclosure

A form from the lender that lists the final loan terms and costs. Buyers should receive it at least three business days before closing.

Title commitment

A document from the title company that lists what must be cleared before it will issue a title policy on the property.

Contingency

A condition in the contract, such as a satisfactory inspection or loan approval, that must be met for the sale to move forward.

Deed

The legal document that transfers ownership of the property from the seller to the buyer once it is signed and recorded.

Earnest money

A deposit a buyer makes after the contract is signed to show good faith. It is usually applied toward the buyer's cash at closing.

Equity

The part of a home you own outright: its value minus what you still owe on the mortgage.

Escrow

A neutral arrangement where a third party, often the title company, holds money and documents until all conditions of the sale are met.

Escrow account (impound)

An account the lender may set up to collect part of your monthly payment and pay your property taxes and insurance for you.

Lien

A legal claim against a property for an unpaid debt, such as a tax bill or contractor invoice. Liens generally must be paid or cleared before closing.

Loan Estimate

A three-page form a lender gives after you apply, showing estimated interest rate, monthly payment and closing costs.

Owner's title policy

Title insurance that protects the buyer's ownership rights in the home against covered problems with its history.

Lender's title policy

Title insurance that protects the lender's interest in the property. It is usually required when a buyer finances the purchase.

Payoff statement

A letter from a seller's lender showing the exact amount needed to pay off the existing mortgage on a given date.

Prepaids

Costs paid in advance at closing, such as homeowner's insurance premiums, prepaid interest and initial escrow deposits.

Proration

Splitting an ongoing expense, such as property taxes, between buyer and seller based on how many days each owns the home in the billing period.

Recording fee

A fee charged by the county to officially record the deed and mortgage in the public record.

Settlement statement

A summary of every charge and credit for the buyer and seller in a transaction, showing who pays what and the final cash amounts.

Survey

A drawing of the property's boundaries and any structures on it, sometimes required by the lender or title company.

Title search

A review of public records to confirm who owns a property and to find liens, claims or errors that could affect the sale.

Underwriting

The lender's review of your finances, the property and the appraisal to decide whether to approve your loan.

Wire fraud

A scam where criminals send fake wire instructions. Always confirm wiring details by phone using a number you already trust.