Morgage Glossary of Common Loan Terms   C Call Option A clause in the mortgage that gives the lender the right to "call" the mortgage due and payable at the end of a given length of time, for whatever reason. Capital Expenditure The cost of an improvement made either to extend the life of a property or to increase its value. Capital Gains When you sell a capital asset at a profit, such as real estate, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain. Capital Improvement Any item, structure or addition that is a permanent improvement to the property. Caps (interest) Limits on the amount that the interest rate on an ARM can change per year and/or during the life of the loan. Payment caps limit the amount that monthly payments for an ARM may change. Cash Flow The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.). Caveat Emptor A legal term meaning "let the buyer beware." The buyer must examine the property and buy at his/her own risk. Example : A property may be offered in an "as is" condition with no expressed or implied guarantee of quality or condition. CC&R's - Covenants, conditions, and restrictions. The basic rules establishing the rights and obligations of owners of real property within a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized for the purpose of operating and maintaining property commonly owned by the individual owners. The association is normally made up of property owners. Certificate of Deposit A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest. Certificate of Eligibility The document issued by the Department of Veterans Affairs to those who qualify for a VA loan which may be used to buy a house with zero down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880. Certificate of Occupancy Document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to closing the loan. Certificate of Reasonable Value (CRV) An appraisal performed by a VA approved appraiser which establishes the property's current market value. This value establishes the ceiling on the maximum VA mortgage loan principal. Certificate of Title An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not the same level of protection as title insurance. Certificate of Veteran Status The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). This document enables veterans to obtain lower down payments on certain FHA-insured loans. Chain of Title The chronological order of conveyance of a parcel of land from the original owner to the present owner. Example: An abstractor can research title to property going back to the date that the property was granted to the United States. Chattel Personal property. Clear Title A marketable title, free of clouds and disputed interests. Most lenders require a clear title prior to closing. Closing The final meeting between the buyer, seller and lender (or their agents) at which the property and funds legally change hands. Closing Costs Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types of costs: recurring and non-recurring. Non-recurring costs are one time transactional costs which include Discount and origination points Lender fees: underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc Title insurance fees Escrow, attorney or closing agent fees Recording fees Inspection and appraisal fees Real estate brokerage commissions Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including Pre-paid interest - interest charges from the date of closing to the end of the month Property taxes if due Hazard insurance, fire insurance or homeowners insurance has to be paid for one year Mortgage insurance (PMI) may be required if the loan amount is more than 80 percent of the value of the property. In the past a whole year of PMI had to be paid up-front, however in recent years many PMI companies only require on to two months up-front. Mortgage insurance premiums are normally paid every month with the loan payment Impound account may need money to be set up for future payments Closing Statement – HUD1 A detailed written summary of the financial settlement of a real estate transaction, showing all charges and credits made, all cash received and paid. Cloud on Title An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title. Compare with clear title. COFI A monthly cost-of-funds index (COFI) reflecting the average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts. The 11th district covers Arizona, California and Nevada. The index is published on the last day of the month and reflects the cost of funds for the prior month. This rate is used by lenders to determine the index rate for some of their variable rate loan products. 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. 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. 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 A written document provided by a lender to agreeing to make a loan on specific terms to a borrower or builder. 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. Compound Interest Interest paid on the original principal balance and on the accrued and unpaid interest. Comps, Comparables Comparable properties; properties in close proximity which have sold recently and are about the same size with similar amenities, used to determine the value of a property by comparison. 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. Conditional Commitment A written document provided by a lender agreeing to make a loan provided certain conditions are met prior to closing. Conditional Sales Contract (Land Contract) A real estate sales contract in which she seller (vendor) agrees to convey title to the buyer (vendee) after certain conditions have been met and transfer is not required within one year.(installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by seller until the sales price has been paid. 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. Construction loan A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan. 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. Experian, TransUnion and Equifax are the 3 main repositories. Consideration Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration. Contingency The requirement that a particular event occur before a contract is binding. For example: The sale of a home can be contingent upon the buyer obtaining financing. Contract An agreement between competent parties to do or not do certain things for consideration. To have a valid contract for the sale of real estate there must be: an offer an acceptance competent parties consideration legal purpose written documentation description of the property signatures by principals or their attorney-in-fact Contract of Sale See Agreement of Sale Conventional Loan Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming. Convertibility Clause A clause in some ARMs which allows the buyer (borrower) to change to a fixed-rate mortgage at a specified time. Condemnation Taking private property for a public use with compensation to the owner under eminent domain. Used by governments to acquire land for streets, schools, freeways, etc. and by utilities to acquire necessary property. Declaring a structure unfit for use because of violations in housing codes or other reasons. Conveyance The transfer of title of real property from one party to another. Covenant A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure. Cooperative (Co-op) See Stock Cooperative. Convertible Adjustable Rate Mortgage (ARM) Some variable loans come with options to convert to a fixed loan based on a pre-determined formula, during a given time period. For example the 1 Year T-Bill ARM may be converted to a fixed rate during the first five years on the adjustment date. One could convert during the thirteenth, twenty-fifth, thirty-seventh, forty-ninth or sixty-first month of the loan. 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 Report A report detailing a borrower's credit and payment history including: revolving and installment accounts; public records such as tax liens and judgments. 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. Experian, TransUnion and Equifax. Credit Score A credit score is a snapshot of a person’s credit risk at a particular point in time. It is used by lenders to help determine if a borrower qualifies for a loan. There are three main credit reporting companies that issue these credit scores. Experian calls it the FICO score, TransUnion calls it Empirica, and Equifax calls it the Beacon. Creditor A person or entity (a bank or other lender) who funded the loan and to whom a debt is owed. Cul-de-sac A dead-end street with a turn-around space at the end. These are attractive to some homeowners because the ending street cuts down on "thru" traffic, speeding, etc. D Debt Ratio This is a loan qualifying ratio used by lenders to determine if a borrower qualifies for a loan. The debt (-to-income) ratio is calculated by taking the borrower’s monthly debts, including house payments, credit cards and personal loans, and dividing it by the monthly income. Deed A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing. Deed-in-lieu A deed given by a mortgagor (homeowner) to the mortgagee (lender) to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance." This avoids the foreclosure process, however it may still be considered a negative mark on your credit and affect your credit scores. Deed of Trust A security instrument (document describing the rights and duties of the lender and borrower) used in real estate transactions in many states. The parties to a deed of trust are: trustee (third party), trustor (borrower), beneficiary (lender). Deed Restriction A clause in a deed that limits the use of land. Example : A deed might require that a road cannot be built on the land. Default Failure to meet legal obligations in a contract, such as the failure to make the monthly mortgage payment. Defective Title Any recorded instrument that would prevent a grantor/seller from giving a clear title. Example: The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien. Deferred Interest Unpaid interest added to the loan balance. This is common in a negative amortized or option arm loan program. The minimum payment is less than the interest charges. The interest that is not paid is added to the balance. Deficiency Judgment Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc. Delinquency Failure to make payments on time. A Notice of Default and foreclosure process usually takes place after you are delinquent for more than a few months. Depreciation When related to the appraisal of property, depreciation is the decrease in value from any cause. When related to taxation, "book depreciation" is a steady decrease (calculated using mathematical formulas or schedules) in the owner's tax basis. Department of Veterans Affairs (VA) An independent governmental agency which guarantees long-term, low- or no-money-down mortgages to eligible veterans. Discount Points Fees paid to a lender to reduce the interest rate. Documentary Tax Stamps Stamps affixed to a deed showing the amount of transfer tax. Dower The rights of a widow or child to part of a deceased husband's or father's property. Downpayment The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs. Example : John buys a house for $100,000 and obtains a loan for $80,000. His downpayment is $20,000. Dragnet Clause A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet. Due on Sale Clause A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property. Use our detailed glossary to familiarize yourself with many of the terms that will be used through out the process of obtaining a loan. The key to being a successful 'borrower' is by making the best decision based on the information available to you. With that in mind we offer this glossary to help you become a more informed 'borrower'.

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