Real Estate Glossary C

C

call option

A provision in a loan that gives the lender the right to accelerate the debt, and require for full payment of the loan immediately, at the end of a specified period or for specified reason.

cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.

capital

(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 extend the useful life of a property or to add to its value, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

capital improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. See Capital Expenditure.

Cash available for Closing

Borrower funds available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from certain sources, borrower's cash available for closing does not include cash reserves or money from other sources.

cash-out refinance

A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement, or any other purpose. The borrower effectively borrows against the home equity.

Ceiling

The maximum interest rate that can accrue on a variable rate loan or adjustable rate mortgage (ARM). See lifetime rate cap.

Certificate of Eligibility

A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) loan.

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan, based on an approved appraisal.

certificate of title

A statement provided by an abstract company, title company, or attorney stating who holds title to real estate based on the public record.

chain of title

The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

clear title

A title that is marketable and is free of liens or disputed legal questions as to ownership of the property.

closing

Closing is a meeting at which all documents are signed and all expenses are paid to transfer ownership of property. Also called "settlement."

closing cost item

A fee or amount that a home buyer must pay at closing for a particular 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 settlement statement.

closing costs

Various expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include items such as broker's commissions, discount points, origination fees, attorney's fees, taxes, title insurance premiums, escrow agent fees, and charges for obtaining appraisals, inspections and surveys. Closing costs will vary according to the area of the country. Lenders or real estate professionals often provide estimates of closing costs to prospective homebuyers even before the HUD-1 settlement statement is delivered.

closing statement

An accounting of funds given to both buyer and seller before real estate is sold. See HUD-1 settlement statement.

cloud on title

An outstanding claim or lien, revealed by a title search, that adversely affects the owner's title to real estate. Usually, clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Clue Report

CLUE is a computerized claims database used by the insurance industry. It was created and is maintained by ChoicePoint Inc. of Alpharetta, Ga. CLUE enables insurers to check the five-year claim history of both a homeowner and a particular property.

co-signer

A person who signs a promissory note along with the borrower. A co-maker's signature helps to assure that the loan will be repaid. The borrower and the co-maker are jointly responsible for the repayment of the loan.

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 stating the minimum amount of coverage that must be maintained - as a percentage of the total value of the property - in order for the insured to collect the full amount of a loss.

collateral

An asset (such as a car or a home) that is pledged as security for 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 or promissory note.

collection

The efforts used to bring a delinquent loan current and, if necessary, to file legal papers and notices to proceed with foreclosure.

Combined loan to value (CLTV)

The ratio of the total amount borrowed on all mortgages against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage and a $10,000 2nd mortgage on a home with an appraised value of $100,000, the CLTV is 90% ($80,000+$10,000 = $90,000 / $100,000 = 90%).

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 (such as 3%, 5%, or 6%).

commitment letter

A formal notification from a lender stating that the borrower's loan has been conditionally approved and specifying the terms under which lender agrees make the loan. Also known as a "loan commitment."

common area assessments

Payments required of 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.

community property

In some Western and Southwestern states, the law specifies that property acquired during a marriage is presumed to be owned jointly by the husband and wife unless acquired as separate property of one spouse or the other.

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 or all of the second mortgage debt may be forgiven depending on how long the buyer remains in the home.

comparables (comps)

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.

compound interest

Interest paid on the principal balance and on the accrued and unpaid interest.

condemnation

(1) Declaration that a building is unfit for use or is dangerous and must be destroyed; (2) taking of private property for a public use (such as a park, street or school) through an exercise of the right of eminent domain.

condominium

A real estate project in which each unit owner has title to a unit in a multi-unit 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 (condotel)

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 home loan with a maximum loan amount of $417,000 (2006) that is eligible for purchase by FNMA and FHLMC.

construction loan

A short-term, interim loan for financing the cost of home 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 lenders use to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from creditors such as mortgage lenders, credit card companies, department stores, etc.

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 do something.

conventional loan

A home loan that is not insured or guaranteed by the federal government. Contrast with government loan. Can be for conforming or non-conforming loan amounts.

convertibility clause

A provision in some adjustable rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed rate loan at specified times during the life of the loan.

convertible ARM

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

cooperative (co-op)

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

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).

covenant

A promise in a mortgage or deed that requires or prevents certain uses of the property that, if violated, may result in loss or foreclosure of the property.

credit

An agreement in which a borrower receives money or something of value in exchange for a promise to repay the lender on specified terms at a later time.

credit history

An evaluation of an individual's capacity and history of debt repayment. A credit history helps a lender to determine whether a potential borrower is likely to repay a loan in a timely manner.

credit life insurance

A type of insurance that pays off a loan if one of the borrowers dies while the policy is in force.

Credit Limit

The maximum amount that can be borrowed under the home equity line of credit.

creditor

A person to whom money is owed.

Credit rating

An expression of creditworthiness based upon present financial condition and past credit history.

credit report

A credit report is 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 (credit bureau)

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.

Credit Scoring

Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors. According to Fannie Mae--one of the major investors in home loans, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan.

Cumulative interest

Total interest accrued

Curtailment

A payment that reduces the principal balance of a loan.