Mortgage Glossary
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Call Option
Similar to the acceleration clause.
Capital Expenditures
Money spent to acquire or upgrade physical assets such as buildings and machinery. Also called capital spending or capital expense.
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 at least pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).
Cash-Out Refinance
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as "cash out refinance."
Cash Reserves
A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Certificate of Deposit
A time deposit held in a bank, which pays a certain amount of interest to the depositor.
Certificate of Deposit Index
One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.
Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.
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 document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
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
An analysis of the transfers of title to a piece of property over the years.
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 are recorded at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.
Closing Costs
Closing costs such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate, which they must issue to the borrower within three days of receiving a home loan application.
Closing Statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD-1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "settlement sheet or statement".
Cloud On Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
Co-Borrower
An additional individual who is both obligated on the loan and is on title to the property.
COFI Mortgage
Adjustable rate mortgage with rate that adjusts based on a cost-of-funds index, the 11th District Cost of Funds is more prevalent in the West and the 1-Year Treasury Security is more prevalent in the East.
Collateral
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
Collection
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to "collection." As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
Commission
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
Commitment
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.
Common Area Assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
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 some states.
Community Property
In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances.
Comparable Sales
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."
Condominium
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
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. These are often found in resort areas like Hawaii.
Conforming Loan
A mortgage loan for up to $333,700 in the continental United States (Alaska and Hawaii and multi-plex limits are higher).
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 handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.
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 sale or deed
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
Conventional Mortgage or Loan
Refers to home loans other than government loans (VA and FHA). See our Information Section for more information.
Conversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan.
Convey
To transfer real estate from one person to another.
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.
Cost of Funds Index (COFI)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
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 repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.
Credit Limit
The maximum amount that you can borrow under a home equity plan.
Creditor
A person to whom money is owed.
Credit Rating
Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower's payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower's credit, and different lenders may assign different grades to the same borrower.
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.
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.
Credit Risk Score
A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.
Cumulative interest
The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money. See effective rate.
Current index value
The most recently published value of the index used to adjust the interest rate on indexed ARMs.
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