Understanding Key Mortgage Terms: A Guide for Farm Credit of Florida Borrowers

Ready to buy land or a home in the country? It’s an exciting milestone, but the financial side can feel a bit overwhelming. At Farm Credit of Florida, we’re here to help you feel confident throughout the entire lending process. To get you started, we’ve put together a quick guide to common mortgage terms and definitions to help you better understand the loan process.

Annual Percentage Rate (APR)

The APR represents the total cost of borrowing over the life of your loan, expressed as a yearly percentage. Unlike your quoted interest rate, which determines your monthly principal and interest payments, the APR includes additional costs like loan points, fees, and mortgage insurance. It’s a more comprehensive measure of what you’ll pay.

Application

This is the paperwork you will need to fill out to apply for a loan. By completing it, you will be providing the basic but critical information such as your name, social security number, date of birth, address, employment information and history, and sources of income.

Appraisal

An appraisal is a professional assessment of a property’s value. It’s based on the home’s features and the sale prices of similar properties in the area. Lenders require appraisals to ensure the home is worth the amount being financed.

Balance Sheet

The balance sheet gives your lender a look at your assets and liabilities. It helps provide information on your net worth, whether you have equity in place, and whether you can withstand the debt you are expecting to take on with a loan.

Certificate of Occupancy

This document is issued by your local municipality and certifies that a newly built or significantly renovated home is safe and ready to be lived in.

Closer

The closer is the person who prepares all the final loan documents and calculates the financial details for closing. They ensure everything is ready for the borrower to sign and finalize the transaction.

Closing

Closing is the final step in the homebuying process. It’s when the buyer and lender sign the mortgage agreement, and the loan funds are transferred to complete the purchase.

Closing Agent

Typically, an attorney or title company representative, the closing agent oversees the signing of documents and ensures the transaction is legally binding.

Closing Costs

These are additional expenses paid at closing, separate from the home’s purchase price. They may include lender fees, title charges, appraisal fees, and more.

Closing Disclosure (CD)

This standardized form outlines the final terms of your loan, including the APR, payment schedule, and total closing costs. It must be provided to borrowers at least three days before closing.

Collateral Description

This is a thorough and specific outline of what the lender is holding as collateral on a specific loan. This document is attached to the Deed of Trust. Depending on the transaction, either the closing attorney or lender will make sure the collateral description matches the description on the deed. If you cannot pay back your loan, the lender has the right to claim the collateral.

Commitment Letter

A formal promise from the lender to provide a loan under specific conditions. It’s a key milestone in the mortgage approval process.

Credit Report

A summary of your credit history and current financial standing, used by lenders to assess your ability to repay the loan.

Deed of Trust

This legal document, sometimes called the mortgage deed of trust, secures a real estate transaction and typically involves the lender, the borrower, and a third party which, in North Carolina, is the local register of deeds. This agreement between the customer and the lender is typically an 8-page document that outlines specific things you, the borrower, must abide by. Items include but are not limited to initial loan amount, property description, length of loan, loan requirements, and power of sale clause. As long as you pay your mortgage and insurance on your property, along with taking care of your property, it should be smooth sailing for you. You have the right to live in or on the property and build equity as you make payments. If payments aren’t made and your lender must foreclose, this is the document that will be used to begin the process.

Down Payment

The portion of the home’s purchase price paid upfront by the buyer. It’s the difference between the sale price and the loan amount.

Escrow Account

A savings account managed by your loan servicer to pay property taxes, homeowners’ insurance, and mortgage insurance on your behalf.

Farm Plan

For new customers who are farmers, a farm plan describing the farm operation, including its business plan, will also need to include income, projected expenses and projected markets.

Float the Rate

Choosing not to lock in an interest rate immediately, allowing you to monitor market fluctuations before committing—usually no later than five days before closing.

Flood Insurance

Required for homes in designated flood zones, this insurance protects against flood-related damage.

Homeowners Insurance

Also known as hazard insurance, this policy protects your home from fire, theft, vandalism, and certain natural disasters. It may also include liability coverage.

Income Statement

This provides information on income at the current point in time and projected income for the coming years. For a home purchase, for example, your lender will likely want to project income for the next three years to make sure income is stable.

Interest Rate

The cost of borrowing money, expressed as a percentage. It determines your monthly mortgage payment.

Interim Interest

Interest accrued between your closing date and the end of that month. It’s typically paid at closing.

Mortgage Insurance

Required when your down payment is less than 20%, this insurance protects the lender if you default on the loan.

Loan Estimate (LE)

A document that outlines the expected costs of your mortgage, provided early in the application process.

Origination Fee

A fee charged by the lender for processing your loan, usually a percentage of the total loan amount.

Prepaids

These are upfront payments for items like property taxes, homeowners insurance, and mortgage interest, collected at closing.

Processor

The person who gathers and verifies all necessary documentation to meet the loan’s conditions before underwriting.

Promissory Note

This is the document you sign as a written promise that you will pay the stated sum to the lender. You are making an obligation to pay back the loan. The note includes information such as the gross loan amount you are borrowing, the interest rate, loan terms, which includes the maturity date when the loan will be paid off, and dates that payments are due (monthly or annually) including information on grace periods. As long as you pay by specified dates, you won’t be subject to a late charge or a late payment being filed on your credit.

Purchase Agreement

This is a front-end agreement between a buyer and a seller. It can be for personal or commercial property. A bill of sale that includes a price and specifics about a piece of equipment, such as make, model, and serial number, is helpful to provide your lender. A bill of sale can be a handwritten agreement or an invoice. When it comes to real estate, details on location, acreage and coordinates are helpful. This helps the lender know what a borrower is seeking when it comes to a loan. There are several different types of agreements the lender will use, depending on the type of purchase. A purchase agreement just for real estate will be different from a construction agreement for a construction project. They vary in length and scope depending on the type of purchase.

Rate Lock

An agreement between borrower and lender to fix the interest rate for a set period, protecting against market changes during loan processing.

Security Agreement or UCC

This is used when you are taking a lien on some sort of personal property such as equipment, crops, or other farm products. It secures those products as collateral for the lender’s financing. For example, when it comes to equipment it will list out specifics such as make, model, year, and serial number. It’s critical to document specific and precise information on what you are purchasing as well as what the lender is holding as collateral. Any assets like equipment or other collateral product that are part of the security agreement or UCC are filed at the state level so that other lenders will know if there is already a lien on a piece of equipment or other item in the event other lenders are also trying to extend financing to a borrower. When it comes to real estate, the security document is the Deed of Trust. 

Servicer

The company that manages your mortgage after closing—handling payments, escrow accounts, and customer service.

Survey

A map created by a licensed surveyor that shows the legal boundaries and features of your property.

Title Insurance

Protects against financial loss due to defects in the property’s title, such as liens or ownership disputes.

Title Search

A detailed review of public records to confirm the seller’s legal ownership and identify any claims or easements on the property.

Underwriter

The person who evaluates your loan application to determine if it meets the lender’s guidelines. They make the final approval or denial decision.

Underwriting

The process of reviewing your financial information, property details, and loan documentation before issuing a final loan decision.

At Farm Credit of Florida, we’re more than just a lender, we’re your financial partner. Whether you're financing a home, a farm, or acreage for future growth, we’re here to guide you through every step of the mortgage process. 

If something is not clear, let your lender know. They understand that for most borrowers obtaining a loan is a big and important step. They want you to be comfortable in asking questions so that you can obtain the information you need to make decisions and move forward with confidence.