What do the terms around closing costs mean?

Closing costs: A homebuyer’s glossary


The homebuying process can seem complex, especially if it’s your first mortgage. That’s why the First Centennial Mortgage Glossary exists, to make sure you know everything you need to before you sign your mortgage agreement. Today, we’ll zoom in on terms related to closing costs.

Settling closing costs is a process every aspiring homeowner must go through. Learning about the acronyms and specialized terms involved in paying for a new home can create confidence, a valuable commodity in any financial transaction. The following are a few of the concepts you may encounter:

Closing Costs

This is a blanket term to describe the expenses associated with closing a sale. Both the buyer and the seller have to take care of some share of costs. A number of items fall under this heading, and include the loan origination fee, attorney’s fees, appraisal charges, title insurance costs, discount points and more.

Origination Fee

The lender charges this fee. It covers the administrative costs associated with processing the home loan.

Attorney’s Fees

You’ll have to pay your attorney for services provided during the closing process. While some states require an attorney to be present at closing and others don’t, having one with you is encouraged no matter where you are.


When a licensed and certified appraiser determines the current market value of a property, that is an appraisal. The estimate will be a written document, based on such factors as home condition and the sale value of other, similar properties. The appraiser will charge an appraisal fee for providing this service.

Title Insurance

This term applies to both lender’s policies and buyer’s policies, which respectively protect you and your lender in case a property-ownership dispute causes financial losses.

Discount Points

Paying discount points means paying up-front at closing to reduce interest over the life of the loan. Each “point” of prepaid interest equals 1 percent of the total amount of the home loan. The Consumer Finance Protection Bureau notes that since each lender’s price structure is unique, not every loan with the same amount of points included will have an identical interest rate.

Assembling a model of a home with a part labeled "mortgage."Closing the sale of a new home means paying a few specialized fees.

Debt to Income Ratio (DTI)

This figure is determined by dividing your total monthly debt payments by your gross monthly income. When lenders are determining whether you’ll be able to manage monthly payments on borrowing, they’ll inspect your DTI. Higher debt-to-income ratios carry elevated risk of being unable to pay back debts. The CFPB notes that qualified mortgages are typically issued to individuals with debt-to-income ratios of 43 percent or lower.

Amortization Schedule

“Amortization” is merely another term for making regular payments to pay off the principal and interest that make up a debt you’ve incurred. If you make a “mortgage payoff,” it means you’ve gone ahead of schedule and paid off the principal of your mortgage before it was initially expected.


This is an acronym for the four components of monthly spending on housing. Principal is the balance of your loan. Interest is the additional amount charged as you repay that loan over time. Taxes are charged by the government on the transaction and insurance costs are also considered.


Money goes into an escrow account on a regular schedule to enable easy repayment of a one-time charge such as an insurance or tax payment. In many states, escrow is required. Escrow accounts are also known as impound accounts.

These are just a few of the most important terms you’ll come across when buying a home. Please see our First Centennial Mortgage Glossary for the full list. And we’re always here to answer your questions by phone or email.

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