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
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 Flow Basis - This calculation shows when your monthly payment savings exceed your
estimated closing costs and discount points. It does not consider the tax impact or differences in
principal balance reduction between your current loan and the refinance suggestions. You can use the
Amortization Schedule Calculator to compare principal reduction.
Cash For Transaction - Enter the amount your want to use toward closing costs (discount points and
fees) and/or to reduce your loan balance. In situations where your loan balance is above the
conforming amount, reducing the principal may allow you to get a lower rate. Enter zero if you want a
no-point loan and/or to finance the closing fees.
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 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
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 - The conclusion or consummation of a transaction. In real estate, closing includes the
delivery of a deed, the signing of notes and security instruments, and the disbursement of funds
necessary to the sale or loan transaction. Also referred to as 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
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 home buyers 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 quit claim deed,
release, or court action.
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.
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
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 $252,700 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.
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.
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
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 Report - A detailed account of the credit, employment and residence history of an individual
used by a prospective lender to help determine creditworthiness. Credit reports also list any
judgments, tax liens, bankruptcies or similar matters of public record entered against the individual.
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.
Current PITI - This is an abbreviation for a monthly payment that includes principal, interest, taxes and
insurance. In mortgage lending it is common for the monthly mortgage payment to include not only the
principal and interest payment on the loan, but an escrow amount for real estate taxes and hazard
insurance as well.
Curtailment - A payment that reduces the principal balance of a loan.