The Learning Center

Glossary

Call Option

A provision in a home loan that gives the mortgagee the right to call the mortgage due and payable at the end of a specified time period for any reason.

Cancellation Clause

A contract provision that gives the right to terminate obligations upon the occurrence of specified events.

Cap

Refers to a provision of an adjustable rate mortgage (ARM) that limits how much the interest rate or payment can increase or decrease.

Capital

1) The net worth of a business defined by the amount by which its assets exceed its liabilities. 2) Money used to create income. 3) The money or other assets comprising the wealth at the disposal of a person or business enterprise. 4) The accumulated wealth of a business or individual.

Capital Expenditures

The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital Improvement

Any component constructed as a permanent improvement to real property that increases its value and adds to its useful life.

Cash Out Refinance

A refinance loan that provides the borrower with cash that exceeds the amount required to pay off existing mortgages on the home. This additional cash can be used by the borrower for any purpose.

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.

Certificate of Title

A statement of opinion rendered by a title company or attorney, stating that a title to real property is legally held by the current owner.

Chain of Title

A history of all documents, including conveyances and encumbrances, that affect title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency

Term sometimes used to describe the frequency of payment or interest rate changes in an adjustable rate mortgage (ARM).

Chattel

Anything tangible and owned other than real estate. The same as personal property.

City/County Tax Stamp

A tax that is required in some municipalities if a property changes hands or a new mortgage is obtained. The amount of this tax can vary with each state, city and county.

Clear Title

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

Close of Escrow

A meeting of the parties involved in a real estate transaction to finalize the process. In the case of a purchase, the close of escrow usually involves the seller, the buyer, the real estate broker and the lender. In the case of a refinance, the close of escrow involves the borrower and the lender. Sometimes referred to as the settlement or closing.

Closing

A meeting of the parties involved in a real estate transaction to finalize the process. In the case of a purchase, a closing usually involves the seller, the buyer, the real estate broker and the lender. In the case of a refinance, the closing involves the borrower and the lender. Sometimes referred to as the settlement or the close of escrow.

Closing Cost Item

A single fee that a home buyer must pay at closing. Closing costs are made up of individual closing cost items such as origination fees, escrow fees, underwriting fees and processing fees. Most closing cost items are included as numbered items on the HUD-1 Settlement Statement.

Closing Costs

The total of all the items that must be paid at closing related to your new mortgage.

Closing Date

The date on which closing occurs.

Closing Fee

A fee sometimes charged by the lender or another party acting as the agent for the lender to perform the closing. Sometimes called a settlement fee.

Closing Statement

Also referred to as the HUD-1 or the settlement statement, this is the document that provides line by line detail of the financial details related to a specific real estate transaction such as the fees paid by the seller and the buyer for a purchase transaction or the fees paid by the borrower for refinances.

Co-Borrower(s)

One or more people who are jointly responsible, along with the borrower for repaying a loan.

Coinsurance

A sharing of hazard insurance risk between the insurer and the insured, or others. A coinsurance clause states to what extent a loss will be covered based on the percentage of value insured.

Collateral

Property pledged as security for a debt. The borrower risks losing the collateral if the debt is not repaid according to the terms of the loan contract.

Collection

The process of bringing a delinquent debt current and the filing of the necessary notices to proceed with repossession or foreclosure when necessary.

Co-maker

A person who signs a promissory note along with the primary 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. Sometimes called a co-signer.

Combination Loan

A type of financing that combines a first mortgage with a second mortgage home equity loan. Generally this type of financing allows the borrower to avoid paying mortgage insurance by keeping the balance of the first mortgage at no more than 80% of the home’s value and financing the amount above that with a second mortgage. Also known as a piggyback loan.

Commission

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

Commitment Letter

A written offer from a lender to provide financing to a borrower. The commitment letter states the terms under which the lender agrees to provide financing to the borrower. Also called a loan commitment.

Common Area Assessments

Charges against individual unit owners in a condominium complex or planned unit development (PUD) for additional funds to repair, maintain, or improve the common areas of the project.

Common Areas

Those areas of a property (usually a planned unit development or condominium project) that are used by all owners or tenants. Common areas may include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings and parking areas.

Common Law

The body of law based on general custom in England and used to a certain extent in the United States. Common law sometimes prevails unless superseded by other law.

Community Property

In some states, a form of ownership under which property accumulated through joint efforts of husband and wife is presumed to be owned equally by them unless acquired as separate property of either spouse.

Comparables

An abbreviated form of comparable properties. Comparables are used for comparative purposes in the appraisal process and are properties that are very similar to the property being appraised. They have been sold recently and have approximately the same size, location and features. Comparables help the appraiser determine the approximate fair market value of the subject property. Often just called “comps”.

Compound Interest

Interest paid on the original principal balance, and on the accumulated and unpaid interest.

Condemnation

The taking of private property for public purpose by a government under the right of eminent domain. Also, the determination that a building is not fit for use or is dangerous and must be destroyed.

Conditional Commitment

A promise by a lender to make a loan if the borrower meets certain conditions.

Condominium

A form of real estate ownership in which each owner has title to a specific unit in a project and joint ownership in the common areas of the project.

Condominium Conversion

Changing the ownership of an existing rental complex building to the condominium form of ownership.

Condominium Hotel

A condominium complex that has registration desks, short-term occupancy, room service and daily cleaning services. Such properties are often operated as commercial hotels even though the units may be individually owned.

Conforming Loan

A loan that does not exceed the maximum loan amount allowed for the most common mortgage investors. Loans that exceed this amount are referred to as "jumbo mortgages". The cost of obtaining a jumbo mortgage is generally higher than the cost of obtaining a conforming mortgage.

Construction Loan

A short term loan that is used to finance the construction of a new home. During the term of the loan the lender makes payments to the builder as the work progresses and the borrower makes interest payments on only the funds that have been disbursed to the builder. Typically, the construction loan is refinanced into a permanent loan after the home is completed.

Construction to Permanent Financing

A loan designed to allow a member to finance the construction of their primary residence and upon completion of their home, seamlessly convert that construction loan into a permanent end loan.

Consumer Confidence

A monthly survey of 5,000 households designed to measure Americans’ optimism about their current situation and the future.

Consumer Reporting Agency (CRA)

A company that prepares detailed reports used by lenders to determine a potential borrower’s creditworthiness. These agencies obtain data for these reports from a credit repository as well as from other sources. More Commonly referred to as credit bureaus.

Consumer Sentiment

An index designed to measure consumer optimism. Includes a preliminary report at mid-month and final report near month-end.

Contingency

A condition that must be met before a contract is legally binding. For example, a lender's commitment to provide financing to a borrower may be contingent on receipt of an acceptable appraisal.

Contract

An oral or written agreement to do or not to do a certain thing for consideration.

Conventional Mortgage

A mortgage that is not insured or guaranteed by a government agency.

Convertibility Clause

A provision in some adjustable rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed rate mortgage at a specified period within the term of the loan.

Convertible ARM

An adjustable rate mortgage (ARM) that allows a borrower to convert their mortgage to a fixed rate loan for the remainder of the loan term if certain conditions are met.

Conveyance

The transfer of title of property.

Conveyance Tax

A tax imposed on the transfer of real property in some areas.

Cooperative Project

A residential or mixed-use building wherein a corporation holds title to the property, sells shares of stock, representing the value of a single apartment, to individuals who then receive a lease, or similar agreement, as evidence of title.

Cooperative (Co-op)

A type of real estate ownership in which residents of a multi-unit property own shares of the corporation that owns the property. The ownership of these shares gives the owner the right to occupy a unit in the building.

Cooperative Corporation

A corporation that holds the title to a cooperative project and grants occupancy rights to shareholders through leases or similar rental agreements.

Cosigner

Another person who signs your loan and assumes equal responsibility for it.

Cost of Funds Index (COFI)

An index that may be used to determine the interest rate changes of an adjustable rate mortgage (ARM). The Cost of Funds Index, or COFI as it is commonly called, is the weighted average of interest rates that Federal Home Loan banks have paid to their customers recently. Usually, the COFI for the 11th district of Federal Home Loan Banks is used and covers banks in California, Nevada, and Arizona. The index value is announced on the last working day of the month following the month listed.

Counteroffer

A response to an offer.

Courier/Mailing Fee

The fee associated with a lender sending documents to other parties involved in the loan, like an attorney or title company. Some lenders may choose not to pass these costs on to the borrower.

Covenant

A promise written into deeds, mortgages and other financial instruments that obligates or restricts the borrower. The violation of some covenants can result in foreclosure.

Covenants, conditions and restrictions (CC&Rs)

Rules and regulations for a development, such as acceptable landscaping or improvements that can be made to individual units.

Credit Bureau

An agency that gathers and keeps your credit record.

Credit Grade

A value given to an individual to reflect their current and past debt repayment patterns. A grade of "A" is considered to be the best.

Credit History

A record of a person’s debt history, including all open and fully repaid obligations. A credit history helps a lender to determine whether a potential borrower has satisfactory history of repaying debts in a timely fashion.

Credit Life Insurance

A type of insurance, often bought by borrowers that will pay off the debt if the borrower dies while the policy is in force.

Credit Report

A record of an individual's current and past debt repayment patterns. A credit history helps a lender to determine whether a borrower has a history of repaying debts in a timely manner.

Credit Repository

An institution that collects, maintains, stores and sells financial and publicly recorded information about the payment records of individuals applying for credit.

Credit Score

A credit score is a number that is calculated based on an individual’s credit history to give lenders a quick and less subjective way to evaluate the credit history of loan applicants. This number helps the lender identify the level of risk they may be taking if they lend to someone. The system awards points based on information in the credit report, and the resulting score is compared to that of other consumers with similar profiles. With this information, lenders can predict how likely someone is to repay a loan and make payments on time.

Credit Scoring System

A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.

Credit Union

Nonprofit cooperative organizations that provide banking and financial services, including mortgages, home improvement loans and home equity loans, to their members.

Creditor

A person or business that is owed money.

Credit-Related Insurance

Health, life or accident insurance designed to pay the outstanding balance of a debt.