Call Option -Â A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason..

Cancellation Clause – A stipulation in a contract that gives one or both parties the right to terminate its obligations if a specific condition or event occurs.

Cap – A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, periodic payment cap, and periodic rate cap.

Capital -Â (1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

Capital Expenditure - The cost of an improvement made to increase the value or a property or extend its useful life, for example, by adding a new room. Costs associated with repair are not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

Capital Improvement - Any permanent improvement to a structure or component that adds to a real property’s value and useful life. (See Capital Expenditure).

Capitalization (Cap) Rate – The rate of return used to calculate the capital value of an income stream. To find the cap rate, net operating income is divided by annual income.

Carrying Charges – The expenses necessary for holding a property. These may include interest and taxes on an idle property or one under construction.

Cash Flow – The total of all debt service payments subtracted from the net operating income will yield the cash flow. (See definition of “net operating income” below.)

Cash Flow Basis – A calculation that shows when your monthly payment savings will exceed your estimated closing costs and discount points. The cash flow basis does not take into account the tax impact or differences in principal balance reduction between your current loan and refinancing suggestions.

Cash Out – Cash paid to the borrower from the proceeds of a loan. While quite frequently seen in refinancing situations, cash out may also occasionally be seen as a benefit of a small percentage of non-conforming loans used for a purchase.

Cash-Out Refinance -Â A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Caveat Emptor – A Latin phrase meaning, “Let the buyer beware.”

Certificate of Deposit – A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

Certificate of Deposit Index – An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See adjustable-rate mortgage (ARM).

Certificate of Eligibility – A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Insurance – A document verifying a policy’s coverage issued by an insurance agency.

Certificate of Occupancy (C.O.) – A document that permits a structure to be occupied by members of the general public. A local government or agency issues this certificate.

Certificate of Reasonable Value (CRV) – Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Certificate of Title – A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Certified Commercial Investment Member (CCIM) – One of several designations awarded by the Realtors National Marketing Institute, an affiliate of the National Association of Realtors.

Certified Residential Broker (CRB) – One of several designations awarded by the Realtors National Marketing Institute, an affiliate of the National Association of Realtors.

Certified Residential Specialist (CRS) - One of several designations awarded by the Realtors National Marketing Institute, an affiliate of the National Association of Realtors.

Chain of Title -Â The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency – The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Chattel – Another name for personal property.

Clear Title – A title that is free of liens or legal questions as to ownership of the property.

Closing - This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Closing Cost – Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors® often provide estimates of closing costs to prospective homebuyers.

Closing Cost Item – A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney’s fees. Many closing cost items are included as numbered items on the HUD-1 statement.

Closing Date – The seller delivers the deed and the buyer pays for the property on this date.

Closing Statement – An accounting of funds for a real estate transaction. This may also be known as a HUD-1.

Cloud on Title -Â Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Co-borrower – An additional individual who is both obligated on the loan and is on title to the property.

Coinsurance – A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Coinsurance Clause – A provision in a hazard insurance policy that states the amount of coverage that must be maintained — as a percentage of the total value of the property — for the insured to collect the full amount of a loss.

Collateral – An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection -The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
Collectors Deed – The holder of the Certificate of Purchase may apply for and receive a Collectors Deed to the property in the event that the property has not been redeemed during a one-year redemption period.

Co-maker – A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

Combined Loan-to-Value (CLTV) – The total of all loans, stated as a percentage of the value of a property. For example, if a property is valued at $100,000 and has three loans totaling $125,000, the CLTV is 125% ($125,000 : $100,000).

Commission – The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment – The notification that a lender has approved a loan. Virtually all commitments are issued on condition of a list of requirements that must be satisfied prior to funding actually taking place. Conditions may include but are not limited to appraisals of a certain value, a clean title, verification of representations by the borrower, and so on.

Commitment Letter – A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a “loan commitment.”

Common Area Assessments – Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners’ association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common Areas – Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Common Law – An unwritten body of law based on general custom in England and used to an extent in the United States.

Community Home Improvement Mortgage Loan® – An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

Community Land Trust Mortgage Loan – An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.

Community Property – In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Community Seconds® – An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

Comparables - An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Comparable Sales – Recently sold properties that will be compared with a property being appraised for the purpose of determining the value of the property in question. When appraising a city property, comparable sales must have the same use as the property being appraised, and many similarities in the size of the house, size of the lot, amenities, etc. and be in the same neighborhood and have been sold in the recent past (usually no more than six months) to someone who is not a friend or relation. The comparable property must also be located within one mile of the subject property. More liberal standards will apply for rural property and some suburban properties. However, the value assigned to the subject property will be more accurate the more similar the comparable sales are to the subject property. Lenders will often compensate for the less precise nature of rural appraised values by allowing only lower loan-to-value ratios than those in urban settings, usually 10% lower. (See definition of “loan-to-value” below.)

Compound Interest – Interest paid on the original principal balance and on the accrued and unpaid interest.

Condemnation – The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.

Conditions, Covenants, and Restrictions (CCR’s) – promises written into deeds and other instruments agreeing to performance or nonperformance of certain acts, or requiring or prohibiting certain uses of the property.

Condominium – A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Condominium Conversion – Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium Hotel - A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

Conforming Loan – A loan which meets the strict underwriting criteria and guideless of Fannie Mae, Freddie Mac, FHA or VA loans. These are typically low-interest rate loans with very good terms. (See definitions of “Fannie Mae”, “Freddie Mac”, “FHA”, “VA” and “underwriting” below.).

Consideration – Anything of value given to induce a party to enter into a contract.

Construction Loan – A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer Reporting Agency (or Bureau) – An organization that prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Contiguous – Two sides that actually touch and/or share a common boundary.

Contingency – A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contract – An oral or written agreement to do or not to do a certain thing.

Contract For Deed - a real estate installment selling arrangement whereby the buyer may use and occupy the land or property, but no deed is actually given by the seller until all or part of the sale price (specified in the contract) has been paid. Same as land contract.

Contractor – A person who provides specific goods or services under the terms of a contract.

Conventional Mortgage – Refers to home loans other than government loans (VA and FHA).Conversion – the act of changing a property to a different use or type of ownership.

Convertibility Clause – A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Convertible ARM – An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Convey – The act of transferring a title to another party.

Cooperative (co-op) – A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cooperative Corporation – A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Cooperative Mortgages – Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

Cooperative Project – A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

Corporate Relocation – Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Cost of Funds Index (COFI) – An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See adjustable-rate mortgage (ARM).

Counteroffer – The act of rejecting an offer, but making an immediate new offer in its place.

Covenant - A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Creative Financing – Refers to any financing arrangement other a traditional mortgage supplied by a third party institution.

Credit -An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit History -A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance -A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Credit Line – A loan that allows revolving use of the credit. After the borrower repays borrowed funds, he or she may borrow funds again without needing to apply for a new loan. There is usually an established limit of available credit and some or all of the available funds can be optionally disbursed at closing. Undisbursed funds are available for the borrower’s use at any time. Payments are required only on the outstanding balance. A credit line resembles a credit card except that the borrower usually uses checks to access the funds. Credit lines are inexpensive and useful tools for investors.

Creditor - A person to whom money is owed.

Credit Report – A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness. See merged credit report.

Credit Repository – An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.