Call Option
A provision in the mortgage that gives the
mortgagee the right to call the mortgage due and payable at the end of a
specified period for whatever reason.
A provision of an adjustable-rate mortgage
(ARM) that limits how much the interest rate or mortgage payments may
increase or decrease. See lifetime payment cap, lifetime rate cap,
periodic payment cap, and periodic rate cap.
Capacity
Lenders will want to know if you can repay
the mortgage debt you incur -- this is known as your capacity. Lenders
will base their evaluation on employment information, how long you've
worked, and how much you are paid. Lenders will also review your expenses
and any other debt obligations you have. This means they'll want to know
how many dependents you have and whether you pay any alimony or child
support, for example.
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.
Capital Improvement
Any structure or component erected as a
permanent improvement to real property that adds to its value and useful
life.
Cash-out Refinance
A refinance transaction in which the amount
of money received from the new loan exceeds the total of the money needed
to repay the existing first mortgage, closing costs, points, and the
amount required to satisfy any outstanding subordinate mortgage liens. In
other words, a refinance transaction in which the borrower receives
additional cash that can be used for any purpose.
CD-Indexed (Certificate of Deposit) ARMs
The Certificate of Deposit index represents
the weekly average of secondary market interest rates on six-month
negotiable CDs. The initial interest rate and payments adjust every six
months after an initial six-month period.
ARMs with this index typically come with a
per-adjustment cap of 1 percent and a lifetime rate cap of 6 percent.
Certificate of Deposit
A document written by a bank or other
financial institution that is evidence of a deposit, with the issuer's
promise to return the deposit plus earnings at a specified interest rate
within a specified time period.
Also see "Adjustable-Rate
Mortgage" entry
Certificate of Deposit Index
An index that is used to determine interest
rate changes for certain ARM plans. It represents the weekly average of
secondary market interest rates on six-month negotiable certificates of
deposit.
Also see "Adjustable-Rate
Mortgage" entry
Certificate of Eligibility
A document issued by the federal government
certifying a veteran's eligibility for a Department of Veterans Affairs
(VA) mortgage.
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 mortgage.
Certificate of Title
A statement provided by an abstract
company, title company, or attorney stating that the title to real estate
is legally held by the current owner.
Chain of Title
The history of all of the documents that
transfer title to a parcel of real property, starting with the earliest
existing document and ending with the most recent.
Change Frequency
The frequency (in months) of payment and/or
interest rate changes in an adjustable-rate mortgage (ARM).
Change Orders
After construction begins, you may discover
that you need to make unplanned and necessary changes to the work. The
contingency reserve covers unforeseen repairs or deficiencies found during
renovation. Unnecessary additions or changes are treated differently.
These change orders are considered
discretionary and must first be approved by your lender. You must deposit
additional funds to pay for the work in the escrow account before work on
the changes begins. These change orders -- as well as any that result from
unforeseen repairs -- must be added as amendments to your construction
contract.
Chattel
Another name for personal property.
Clear Title
A title that is free of liens or legal
questions as to ownership of the property.
A meeting at which a sale of a property is
finalized by the buyer signing the mortgage documents and paying closing
costs. Also called "settlement."
Also see "Settlement"
entry
Closing Agent
As a potential home buyer, you will need a
closing (or "settlement") agent to coordinate the various closing
activities. These can include but are not limited to preparing and
recording the closing documents and disbursing funds.
The types of services provided by a closing
agent depend on the person you hire, but typically the closing is
conducted by title companies, escrow companies or attorneys. It is usually
held at the lender's or real estate sales professional's office.
Closing Cost Item
A fee or amount that a home buyer must pay
at closing for a single 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 statement.
Closing Costs
Expenses (over and above the price of the
property) incurred by buyers and sellers in transferring ownership of a
property. Closing costs normally include an origination fee, an attorney's
fee, taxes, an amount placed in escrow, and charges for obtaining title
insurance and a survey. Closing costs percentage will vary according to
the area of the country; lenders or realtors® often provide estimates of
closing costs to prospective homebuyers.
Closing Date
After your lender has approved your
mortgage and you accept the commitment letter, the next step is to set a
closing date. Many times, your real estate sales professional coordinates
the setting of this date with you, the seller, the closing agent, and your
lender.
You may be able to move up the time frame
for your closing by working with a lender who uses Desktop Underwriter® --
our advanced automated underwriting system -- because it can cut the time
it takes to process your mortgage.
Remember, you need to ensure that the
closing occurs before your lender's commitment letter -- and the rate
lock-in, if there is one -- expire. You can now finalize your moving
plans.
Closing Statement
see "HUD-1 Settlement Statement" entry
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 a quitclaim deed, release, or court action.
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 also "Endorser" entry
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
that states the amount of coverage that must be maintained -- as a
percentage of the total value of the property -- for the insured to
collect the full amount of a loss.
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.
Commercial Banks
Commercial banks, like thrifts, originate
and service mortgage loans. In some cases, commercial banks may have
mortgage banking subsidiaries that perform this function. Banks may choose
to hold a loan in their own portfolio or sell the loan to an investor.
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 Letter
A formal offer by a lender stating the
terms under which it agrees to lend money to a home buyer. Also known as a
"loan commitment."
see also "Loan Commitment" entry
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 Land Trust Mortgage Option
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.
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.
Condition of the Home
Potential homeowners should know of major
problems in a home before they make an offer. As a potential buyer, you
should carefully examine all elements of the home. Ask questions to the
seller and the real estate sales professional about any concerns you may
have. Both the seller and the real estate agent can be held liable if they
do not disclose any defects they know about in the home.
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 Contract
The terms and conditions of any major
renovation job should be part of a formal, legally binding contract
between you and your contractor -- this is called the construction
contract. The lender you choose will likely want to review this contract
before you sign it.
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.
Contingencies for Repairs
In your purchase offer, you may consider
stating that the seller must make sure the electrical systems, heating and
cooling, plumbing, and mechanical systems are functioning properly at the
closing. You may also state that your purchase is contingent upon the
satisfactory completion of a professional home inspection, which will
check these systems and other elements more completely. These are both
ways to ensure that surprises don't arise when your moving day arrives.
If you do not include this clause in your
contract, you are essentially accepting the house "as is."
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.
Contingency for Clear Title
Your purchase contract should include a
contingency that the purchase is subject to your receiving clear title to
the property. This process includes a title search and title insurance.
Contingency for Financing
When you make a formal offer on a house,
your contract should include a financing contingency. It specifies if you
don't get the money you need to purchase the house at the terms you want,
the offer is void and you will be refunded your deposit.
Don't be surprised if the seller includes a
clause in the contract that states you must make a "good-faith effort" to
get the mortgage. This is the seller's way to ensure that you explore all
options to get a mortgage loan.
Contingency for Personal Property
Your purchase contract should specify
appliances, fixtures, and other personal property that must remain in the
home. You can avoid any surprises by listing in your contract everything
that is to be left behind when the seller moves out.
Contingency Reserve
Most mortgages for purchase-renovation
require an additional 10 percent of the total cost of the project to be
put aside into a reserve account. This contingency reserve is only used
when unforeseen repairs or deficiencies are found during renovation.
Contract
An oral or written agreement to do or not
to do a certain thing.
Contractor
A general contractor is a person who
oversees a construction project and handles aspects such as scheduling
workers and ordering supplies.
Conventional Mortgage
A mortgage that is not insured or
guaranteed by the federal government. Contrast with government mortgage.
Convertibility Clause
A provision in some adjustable-rate
mortgages (ARMs) that allows the borrower to change the ARM to a
fixed-rate mortgage at specified timeframes after loan origination.
Convertible ARM
An adjustable-rate mortgage (ARM) that can
be converted to a fixed-rate mortgage under specified conditions.
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.
Cooperative Corporation
A business trust entity that holds title to
a cooperative project and grants occupancy rights to particular apartments
or units to shareholders through proprietary leases or similar
arrangements.
Cooperative Mortgages
Mortgages related to a cooperative project.
This usually refers to the multifamily mortgage covering the entire
project but occasionally describes the share loans on the individual
units.
Cooperative Project
A residential or mixed-use building wherein
a corporation or trust holds title to the property and sells shares of
stock representing the value of a single apartment unit to individuals
who, in turn, receive a proprietary lease as evidence of title.
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).
Costs for Settling Into Your Home
When figuring out how much home you can
afford, you need to account for the costs associated with getting into
your home.
These can include the cost for repairs that
need to be made before you can occupy your residence. There may also be
the cost of purchasing appliances, such as a washer and dryer,
refrigerator, or stove.
The bottom line is you do not want to spend
all your money on purchasing the home and not have any left to pay these
types of costs.
Covenant
A clause in a mortgage that obligates or
restricts the borrower and that, if violated, can result in foreclosure.
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 Bureau
The three main credit reporting agencies,
or credit bureaus, are Equifax, Experian, and Trans Union. You can order a
copy of your credit report (a nominal fee may apply) via telephone at:
Equifax: (800) 685-1111
Trans Union: (800) 916-8800
Experian: (800) 682-7654
Credit History
A record of an individual's open and fully
repaid debts. A credit history helps a lender to determine whether a
potential borrower has a history of repaying debts in a timely manner.
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 Profile
There are several ways to ensure you have a
good credit report and credit score. One of the most effective is to
manage your existing credit in a positive way.
Ask your lender for suggestions about ways
to control the amount of money you owe. Or, you can choose a credit
counselor from the list provided on this site. Some lenders may view
consumers as a greater risk if they have used most or all of their
available credit. Consumers who are considered "overextended" may be
viewed this way even if they have made all their debt payments on time.
Missing a payment on a bill should be
avoided, as should late payments on any of your credit obligations.
Experiencing a mortgage foreclosure, filing for bankruptcy, or having your
vehicle repossessed can also affect your credit score and credit report,
limiting your ability to get new credit at a reasonable rate.
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 Report Fee
The credit report fee covers the lender's
cost for ordering your credit report from a credit bureau.
This report will verify some of the
information you provided on your loan application as well as additional
information from the credit agency's files and from public records.
When a credit report is received, your
lender will check it against your application and look for any
discrepancies. You may be asked to explain information in your credit
report.
Credit 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.
The three main credit reporting agencies,
or credit bureaus, are Equifax, Experian, and Trans Union. You can order a
copy of your credit report (a nominal fee may apply) via telephone at:
Equifax: (800) 685-1111
Trans Union: (800) 916-8800
Experian: (800) 682-7654
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 Scoring
Your credit score is based on all the
information in your credit report. This information is converted into a
number -- a credit score -- that the lender uses to determine whether you
are likely to repay your loan in a timely manner. The scores used in
mortgage lending are typically in the 300 to 900 range. A general guide is
that the higher your score the better. But you should keep in mind that
your credit score is just one of several factors that will be used to
evaluate your mortgage loan application.
Credit Unions
A credit union is a financial institution
that is owned and run by its members. It is a nonprofit, cooperative
institution that offers members a place to save and borrow. A credit union
often works by having its members pool their funds so additional loans can
be made to other members.
Creditor
A person to whom money is owed.
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