The attorney who handles the legal and administrative work required to complete the real estate transaction. The closing attorney may conduct or coordinate the title search, prepare or review closing documents, handle the transfer of funds, facilitate the closing, and ensure the deed and other necessary documents are properly recorded.

In Alabama, real estate closings are commonly handled by attorneys, and your Realtor or lender can help you understand who will be handling your closing.

Good To Know: The closing attorney’s fees are billed as closing costs. Sometimes they are split between the buyer’s closing costs and the seller’s closing costs. Sometimes they are all billed to the seller or all to the buyer. This depends on the agreement in the purchase contract.

This is different from down payment. Closing costs are the various fees/expenses a homebuyer incurs before the closing and at the closing.

Examples:

• Home Inspection Cost

• Appraisal Cost

• Recording Fees

• Initial HOA Fees

• Broker Fees

• Survey Cost

• Insurance Premium

Additional requirements or documentation a lender needs before a mortgage can receive final approval. Conditions may include updated income or asset documentation, explanations of deposits or credit activity, verification of employment, insurance information, appraisal report, or other items requested by the lender.

Good To Know: Having conditions is normal and does not necessarily mean there is a problem with your loan. Respond to requests promptly and provide exactly what your lender asks for. Ask questions if you’re not sure what they need.

There are three major credit bureaus: Trans Union, Experian, and Equifax. Each one creates a credit report based on info from public records, lenders, and collection agencies. So this means they record accounts opened and closed, payment history, credit limits, etc. These credit reports help mortgage lenders determine your creditworthiness. These reports are also used to determine credit scores.

The amount of credit a borrower actually using.

Example:

• You have a credit card limit of $1,000.

• You’ve spent $500 and have not paid it back yet.

Your credit utilization is 50%.

Calculate this by adding up all of your credit balances and adding up all of your credit limits. Then divide the total balance by the total limit and multiply by 100 for the credit utilization percentage.

DTI is the percentage of your gross monthly income that goes toward your monthly debt payments.

Example:

• You earn $6,000/month before taxes.

• You have $1,800 in monthly debt payments.

Your DTI is 30%

Calculate this by adding up all of your monthly debt payments and adding up all of your monthly income. Then divide the total debt amount by the total income amount and multiply by 100 for the debt-to-income percentage.

$1,800 ÷ $6,000 × 100 = 30% DTI

For a mortgage application, the proposed new monthly housing payment is generally included in the total debt calculation. This means the mortgage amount, HOA fees, property taxes, homeowner’s insurance, and mortgage insurance.

The amount of money a homebuyer pays at the closing toward the sales price of a home. The rest of the sales price is paid by the lender.

Example:

• You agreed to pay a sales price of $350,000 for a home.

• Your mortgage requires minimum 3.5% down payment.

• Your down payment owed is $12,250.

The phase and process of a buyer investigating and evaluating a home after an offer is accepted to make sure they are satisfied moving forward with the purchase. This may include conducting inspections, reviewing disclosures and property information, researching insurance, and looking into other factors that are important to the buyer.

A deposit a buyer makes when entering into a purchase contract to show the seller that they are serious about buying the home. Earnest money is typically held in an escrow account by a real estate brokerage involved or the closing attorney.

Good To Know: Earnest money is typically not an additional cost. If you close—it is generally credited toward what you owe at closing.

Example: Your down payment + closing costs amounts to $18,000. You already paid $3,000 of earnest money. At closing you would owe $15,000.

Also Good To Know: If you back out of the purchase contract, you may not always get the earnest money you paid back. In some events the seller could be owed the earnest money. This depends on the agreed terms in your contract. This is why sellers care about the earnest money amount.

An account where money or documents are held by a neutral third party until certain conditions of the transaction are met.

During a home purchase, earnest money is typically placed in an escrow account and held until it is applied at closing or otherwise disbursed according to the contract.

Good To Know: “Escrow” can refer to different things in real estate. During the purchase process, it often refers to the account holding the earnest money. Your mortgage lender may also use a different escrow account that continues after closing to collect money for property taxes and homeowner’s insurance.

A buyer’s last opportunity to walk through the home shortly before closing. This is to make sure it is in the condition expected under the purchase contract.

Good To Know: A final walk is not another home inspection. It’s a final check before closing so you can identify anything that needs to be addressed before you take possession.

This is a letter written by the person who is gifting funds to a homebuyer for a home purchase. This may be requested by the lender financing the purchase.

A lender's purpose is to verify that the gifted money is not a loan but, indeed, a gift the homebuyer doesn't have to pay back.

The lender may also require the letter to explain where the money came from because all funds for a home purchase must come from a legitimate source.

A Loan Estimate (LE) is a standardized form a mortgage lender provides after you apply for a mortgage. It shows important details about the proposed loan, including the interest rate, estimated monthly payment, loan amount, closing costs, and estimated cash needed to close.

The Loan Estimate makes it easier to understand the cost of a mortgage and compare loan offers from different lenders.

Good To Know: A Loan Estimate is not a final approval or a guarantee that you’ll receive the loan. Some of the costs and terms will typically change as the loan process continues.

Also Good to know: The Loan Estimate is a standardized federal disclosure created by the Consumer Financial Protection Bureau (CFPB). Because lenders use the same standardized form, it should make comparing loan offers easier for you.

The point in a real estate transaction when the buyer has the legal right to occupy and use the property. Possession typically occurs at closing, but the contract may specify a different time or date.

This is the amount of savings a homebuyer has leftover after paying down payment + closing costs.

Lenders will sometimes require a certain amount of reserves to make sure the buyer can still afford the mortgage if their income is lost or reduced.

Assets like investment accounts will often count toward a reserves requirement.

The mortgage professional who reviews your loan application, financial information, property information, and supporting documentation to determine whether the loan meets the lender’s approval requirements.

Good To Know: Your loan officer helps guide you through the mortgage process, while the underwriter is usually a separate person or department responsible for evaluating the loan for approval.