Closing Cost Vocabulary: Escrow, Prepaids, Points and Title Charges
The short answer: Closing costs are the upfront charges for getting a mortgage and transferring ownership, not counting the down payment. On the Closing Disclosure, they fall into two groups. Loan costs cover origination charges (including any points) and the services the lender requires. Other costs cover government taxes and fees, prepaids, the initial escrow deposit and anything else. Their total is different from cash to close, the amount the buyer actually brings (CFPB Closing Disclosure explainer; 12 CFR 1026.38).
Buyers usually ask their agent what these lines mean before they ask anyone else. Here's the vocabulary, in the order it appears on the form.
What are "loan costs"?
These are charges tied to getting the loan itself. The Closing Disclosure groups them under three subheadings (12 CFR 1026.38(f)):
- Origination charges. Upfront charges from the lender for making the loan (CFPB). Application or underwriting fees show up here, and so do points.
- Services Borrower Did Not Shop For. Third-party services the lender required and chose, such as an appraisal or credit report. Compare them with "Services You Cannot Shop For" on the Loan Estimate (CFPB).
- Services Borrower Did Shop For. Required services where the buyer picked the provider from the lender's list or found one on their own. If the buyer doesn't recognize a company here, that's worth a question (CFPB).
What are points, and how are they different from lender credits?
Points (also called discount points) are an upfront fee paid to the lender in exchange for a lower interest rate. One point equals 1% of the loan amount, so one point on a $300,000 loan is $3,000. Points don't have to be whole numbers. On the Loan Estimate and Closing Disclosure they appear on page 2, Section A, and by law the points listed there must be connected to a discounted rate (CFPB on points and lender credits).
Lender credits work the other way. The lender covers some closing costs in exchange for a higher rate (CFPB).
CFPB notes that some lenders use "points" loosely for any fee figured as a percentage of the loan, so ask the lender what each one does to the rate. For the exam math, see NJ exam math.
What are title charges?
Any item that's part of title insurance or of conducting the closing must be labeled starting with "Title -". A lender's policy premium might read "Title - Premium for Lender's Coverage" (12 CFR 1026.37, official interpretation). The owner's policy is shown as "Title - Owner's Title Policy (optional)" because it isn't required by the lender (same source).
Lender-required title services land in the loan costs. The owner's policy is listed under "Other." For what the policies actually do, read title searches and title insurance.
What are "other costs"?
These four subheadings make up the rest of the closing costs (12 CFR 1026.38(g)):
| Term | What it means |
|---|---|
| Taxes and Other Government Fees | Costs of transferring the property and recording the deed and mortgage with the county (CFPB). In New Jersey, the Realty Transfer Fee is paid when the deed is recorded, and the statute puts it on the grantor, meaning the seller (N.J.S.A. 46:15-7). Rates and exemptions change, so use the current schedule rather than a number from memory |
| Prepaids | Amounts paid ahead of the first scheduled payment. Common examples are interest from the closing date to the end of that month and the first year's homeowners insurance premium (CFPB; 12 CFR 1026.37(g)(2)) |
| Initial Escrow Payment at Closing | The opening deposit into the escrow account, itemized with a monthly amount and the number of months collected (12 CFR 1026.37(g)(3)) |
| Other | Everything else required or obtained in the closing by the buyer, seller or others, such as an owner's title policy or other services the buyer chose (12 CFR 1026.38(g)(4)) |
Why do prepaids and escrow get confused?
Both involve taxes and insurance, but they do different jobs:
- Prepaids pay bills that are due now, like the first year's insurance premium and the interim interest.
- Initial escrow deposit seeds the account the servicer will use to pay future tax and insurance bills.
An escrow account (sometimes called an impound account) is set up by the lender. Part of each monthly payment goes into it, and the servicer pays the property taxes and insurance from it. Taxes and premiums can change, so the escrow portion of the payment can change too (CFPB).
Federal rules cap the deposit. At closing, the servicer can collect enough to cover charges since they were last paid, plus a cushion of no more than one-sixth of the estimated annual escrow payments. After that, the monthly escrow amount is generally one-twelfth of the yearly bills plus that same cushion limit (12 CFR 1024.17(c)).
Don't mix this up with your broker's escrow account for the buyer's deposit. That's a separate thing governed by NJ licensing rules; see the glossary.
What's the difference between closing costs and cash to close?
Total Closing Costs are the upfront costs of the loan and the transaction, excluding the down payment. Cash to Close is what the buyer actually has to pay at closing. It takes the price and closing costs, then subtracts the loan amount, the deposit already paid and any credits (CFPB). Two more lines affect it:
- Seller credit. The amount the seller agreed to put toward closing costs. Make sure it matches the contract.
- Adjustments. Credits between buyer and seller for items already paid or still owed, such as property taxes the seller paid in advance for a period after closing (CFPB).
CFPB says cash to close is typically paid by cashier's check or wire transfer, and that buyers should ask their closing agent how to pay. Depending on the location, that person may be a settlement agent, escrow agent or closing attorney (CFPB). It's also good practice for buyers to confirm any wiring instructions by phone, using a number they already know, before they send money.
When does the buyer see all this?
The buyer must receive the Closing Disclosure at least three business days before consummation (12 CFR 1026.19(f)). CFPB suggests using those days to compare it line by line with the latest Loan Estimate and to ask the lender about anything that changed (CFPB). The full TRID timeline is in financing on the NJ exam.
As an agent, your job is to explain the terms and send buyers to the lender or their attorney for the numbers. Don't promise what a fee "should" be. If you're working toward your license, Business Elementary's 75-hour pre-licensing course covers closing and settlement.
Sources
- CFPB, Closing Disclosure Explainer: https://www.consumerfinance.gov/owning-a-home/closing-disclosure/
- CFPB, How should I use lender credits and points?: https://www.consumerfinance.gov/ask-cfpb/how-should-i-use-lender-credits-and-points-also-called-discount-points-en-136/
- CFPB, What is an escrow or impound account?: https://www.consumerfinance.gov/ask-cfpb/what-is-an-escrow-or-impound-account-en-140/
- 12 CFR 1026.19, 1026.37 and 1026.38 (Regulation Z, with official interpretations): https://www.consumerfinance.gov/rules-policy/regulations/1026/19/ ; https://www.consumerfinance.gov/rules-policy/regulations/1026/37/ ; https://www.consumerfinance.gov/rules-policy/regulations/1026/38/
- 12 CFR 1024.17 (Regulation X, escrow accounts): https://www.consumerfinance.gov/rules-policy/regulations/1024/17/
- N.J.S.A. 46:15-7, realty transfer fees (via Justia): https://law.justia.com/codes/new-jersey/title-46/section-46-15-7/
Last reviewed: October 28, 2026
Related guides:
- Seen a "seller credit" on the Closing Disclosure? Seller Concessions vs Price Reductions compares the two, with a worked example and the lender limits on seller-paid costs.
Frequently Asked Questions
Is the down payment part of closing costs?
No. Total Closing Costs exclude the down payment. Cash to Close includes it, less the loan, deposit and credits (CFPB).
How much is one discount point?
1% of the loan amount, and it's listed in Section A on page 2 of the Closing Disclosure (CFPB).
What does "prepaids" mean on a Closing Disclosure?
Amounts paid before the first loan payment, such as interim interest and the first year's homeowners insurance (12 CFR 1026.37(g)(2)).
How big can the escrow cushion be?
No more than one-sixth of the estimated total annual escrow payments (12 CFR 1024.17(c)).
Why does the owner's title policy say "optional"?
Because the lender doesn't require it. Federal disclosure rules label it "Title - Owner's Title Policy (optional)" (12 CFR 1026.37 interpretation).