Closing Process and Settlement Flashcards

What does 'prorating' mean in the context of a real estate closing?

Answer: Dividing periodic costs like property taxes between buyer and seller based on the closing date

Proration allocates shared expenses such as property taxes, HOA dues, or prepaid rents between buyer and seller proportionally based on the closing date.

What is a 'lender's title insurance policy'?

Answer: A policy that protects the lender's interest up to the loan amount against title defects

Lender's title insurance (loan policy) protects the lender's security interest in the property against title claims up to the outstanding loan balance.

What is 'points' in the context of mortgage closing costs?

Answer: Upfront fees equal to 1% of the loan amount, paid to the lender, often to reduce the interest rate

One point equals 1% of the loan amount; discount points are paid upfront to buy down the interest rate, while origination points are a lender fee.

What is a 'closing attorney' state?

Answer: A state that requires a licensed attorney to oversee and conduct the real estate closing

In closing attorney states (such as Georgia and South Carolina), a licensed attorney must supervise or conduct the closing and disburse funds.

What is 'seller concessions' in a mortgage transaction?

Answer: Credits the seller pays toward the buyer's closing costs, subject to loan program limits

Seller concessions are contributions from the seller to offset the buyer's closing costs; each loan program (FHA, conventional, VA) caps the allowable percentage.

What is a 'per diem interest' charge at closing?

Answer: Interest charged for each day from the closing date to the end of that month, prepaid at settlement

Per diem (daily) interest covers the interest that accrues from the closing date through the last day of the month, after which the first full month's payment picks up.