Home Loan Glossary – C

C
Call Option: A call option gives the lender the right to demand full payment of the loan immediately, after a specified period or for a specific reason. Ask your Loan Consultant about the call option in your loan agreement, and what could trigger it.
Cap: A cap limits how much the interest rate or home loan payments of an adjustable-rate mortgage (ARM) may increase or decrease. A cap protects the borrower from large increases in the interest rate or monthly payments. Refer to Lifetime Rate Cap, Periodic Payment Cap, and Periodic Rate Cap.
Capital: Capital can be defined as: (1) Money used to generate income, such as through investment in a business or an income property. (2) The money or property that makes up the wealth owned or used by an individual or a business. (3) The assets of an individual or business. (4) The amount by which a business's assets exceed its liabilities, i.e.: the net worth of a business.
Capital Expenditure: The cost of renovations made to extend the usefulness of a property, or to enhance its value, such as building an additional room or adding a swimming pool. The cost incurred by repairing a property is not capital expenditure. While capital expenditures appreciate during the span of their useful life, repairs are subtracted from earnings for that year.
Capital Improvement: Any structure or building erected as a permanent upgrade to real property is a capital improvement. It adds to the value and extends the useful life of the property. See Capital Expenditure.
Cash Available For Closing: These are funds available from a borrower for covering a down payment and closing costs. When calculating the cash available to the borrower for closing, the lender will not include cash reserves or funds from other sources if the lending agreement requires cash reserves at the time of closing, or that the down payment comes from specific sources.
Cash-out Refinance: This is a refinance transaction used to get cash, by borrowing against the home's equity, or increased value. The new home loan amount is greater than the total of the principal balance of the current first mortgage, plus any secondary mortgages or loans being paid off, plus closing expenses and points for the new loan. The excess amount is normally given to the borrower in cash and can be used for debt consolidation, home improvement and various other purposes.
Ceiling: The maximum interest rate permitted on an adjustable rate mortgage (ARM) or a variable rate loan is called the ceiling. See Lifetime Rate Cap.
Certificate Of Eligibility: This term refers to the certification of a veteran's eligibility for a Department of Veterans Affairs (VA) loan. It is issued in a written document by the federal government known as a certificate of eligibility.
Certificate Of Reasonable Value (CRV): This is a document declaring the maximum value and loan amount for a VA loan, issued by the Department of Veterans Affairs (VA). This figure is determined by an approved appraisal.
Certificate Of Title: A certificate of title is a record provided by an attorney, title company or abstract company clarifying the legal ownership or title to real estate, according to public record.
Chain Of Title: A chain of title is the history of all documents pertaining to legal ownership of a parcel of real property, organized in order of earliest existing document to the most recent one.
Clear Title: A clear title is legal ownership of a property that is free of liens or disputed legal questions, and is thus available for purchase.
Closing: A closing is a meeting at which all documents are signed and all costs settled in order to transfer ownership of a property. This is also known as "settlement".
Closing Cost Item: A payment made by a home buyer at closing for a particular tax, service or product. Closing costs include such expenses as attorney's fees and home loan origination fees. Several individual closing costs are added as numbered items on the HUD-1 settlement statement. See Closing Costs and HUD-1 Settlement Statement for more details.
Closing Costs: Closing costs are the expenses, over and above the price of the property, that buyers and sellers must pay when transferring property ownership. Closing costs usually include expenses such as escrow agent fees, attorney's fees, brokers' commissions, loan origination fees, appraisal costs, discount points, taxes, title insurance premiums, and charges generated by surveys and inspections. Closing costs vary according to state and local customs and laws. In some cases, lenders and real estate agents provide estimates of closing costs to prospective homebuyers before drawing up the HUD-1 settlement statement. See HUD-1 Settlement Statement for more details.
Closing Statement: A closing statement is an accounting of funds handed to both the buyer and the seller before finalizing the sale of real estate at the closing. See HUD-1 Settlement Statement.
Cloud On Title: This describes a claim or lien on property revealed by a title search that has a negative effect on the owner's clear ownership of the real estate. In most cases, clouds on title can only be removed by a quitclaim deed, court action or release.
Coinsurance: Sharing of insurance risk between the insurer and the insured is known as coinsurance. It relies on the relationship between the policy's worth and a specified percentage of the real value of the insured property at the time of the loss.
Coinsurance Clause: The Coinsurance Clause is a condition in a hazard insurance policy defining the minimum amount of coverage that must be maintained so that the insured is able to claim the full amount of a loss. This amount is expressed as a percentage of the value of the property.
Collateral: An asset owned by a borrower (such as a car or home) that is pledged as security for the payment of a home loan. If the borrower fails to repay the loan according to the terms of the contract or promissory note, he or she risks losing the asset.
Collection: The efforts to bring a delinquent loan current or to file legal papers and notices to continue with foreclosure, if necessary, is referred to as collection.
Combined Loan To Value (CLTV): This is the ratio of the total amount borrowed against a property, compared to the appraised value of the property. For example, if you have a $40,000 1st mortgage and a $5,000 2nd mortgage on a home with an appraised value of $50,000, the CLTV is 90% ($40,000+$5,000 = $45,000 / $50,000 = 90%).
Commission: This is the fee that a broker or an agent charges for negotiating and facilitating a loan or real estate transaction. A commission is usually a percentage of the price of the loan or property – such as 3%, 5% or 6%.
Commitment Letter: A commitment letter is an official letter issued by a lender stating that a borrower's loan has been conditionally approved. It specifies the terms under which the lender agrees to make the loan. This is also known as a "loan commitment".
Common Area Assessments: Common area assessments are payments made by individual unit owners in a condominium or planned unit development (PUD) project. These are funds to be put towards the repair and maintenance of shared areas, homeowners' association costs and various other shared expenses.
Common Areas: Common areas are the portions of a building, land and amenities of a planned unit development (PUD), condominium or cooperative project that are used by all unit owners, who contribute to their operation and upkeep. Amenities such a tennis courts, swimming pools and other recreational facilities are common areas, as are common hallways of buildings, parking lots and means of entry and exit from these areas.
Community Property: As provided by law in certain Western and Southwestern states, property acquired during a marriage is considered to be jointly owned by both spouses, unless obtained as separate property of one or the other spouse.
Community Seconds^®: Community Seconds^® is an alternative financing option for low-to-moderate income households. With Community Seconds^®, a second mortgage, issued by a county, state, local housing agency, nonprofit organization or foundation, supplements the first mortgage used to purchase a home. Payment on the second mortgage is usually deferred and carries either a very low interest rate or none at all. Some or all of the second mortgage debt may be forgiven depending on the length of time the buyer remains in the home.
Comparables (comps): "Comps" is an abbreviation for "comparable properties", which are used in the appraisal process. Comparable properties are similar to the subject property – they are roughly equal in size, location, and amenities -- and have been sold recently. Comparables help the appraiser to determine the fair market value of the property under consideration.
Compound Interest: Compound interest is interest paid on the principal balance, as well as on the accumulated and unpaid interest.
Condemnation: Condemnation is (1) A declaration that a building is dangerous or not fit for use, and must be destroyed. (2) Acquiring private property for public use, such as a street, park or school, through exercising the right of eminent domain. See Eminent Domain.
Condominium: A real estate project in which the owner of each unit has the title to a unit in a multi-unit building, an undivided interest in the common areas of the project, and at times, the exclusive use of particular limited common areas.
Condominium Conversion: Condominium conversion is the changing of a building's ownership (usually a rental project) to the condominium type of ownership.
Condominium Hotel (condotel): A condotel is a condominium project that operates as a commercial hotel. Therefore, while the units are individually owned, the building has temporary occupancy, rental or registration desks, telephone and catering services, as well as daily cleaning services.
Conforming Loan: A conforming loan is a loan eligible for purchase by the government-sponsored entities known as Fannie Mae (FNMA) and Freddie Mac (FHLMC). These loans must fit within their underwriting guidelines as wells as the maximum loan amounts they establish each year.
Construction Loan: A temporary, interim home loan for financing the cost of home construction is known as a construction loan. The lender pays installments to the builder at periodic intervals as the construction progresses.
Consumer Reporting Agency (or Bureau): A Consumer Reporting Agency, also known as a Credit Bureau, creates reports that allow lenders to evaluate the credit history of a potential borrower. The agency obtains the information for these reports from a credit repository, as well as from various creditors, such as credit card companies, mortgage lenders and department stores.
Contingency: A contingency is a condition that needs to be met before a contract is legally binding. Home purchasers, for example, frequently include a contingency that the home sale contract is not binding until the buyer obtains a satisfactory inspection report from a qualified home inspector.
Contract: A contract is a written or oral agreement to do (or not do) something, usually enforceable by law.
Conventional Loan: Conventional loans, in contrast to Government Loans, are loans that are not insured or guaranteed by federal government agencies, the FHA or VA. However, they may be sold to government-sponsored agencies such as Fannie Mae or Freddie Mac.
Convertibility Clause: A provision in certain adjustable rate mortgages (ARMs) that gives the borrower the option to change the ARM to a fixed rate loan at specific times through the life of the loan.
Convertible ARM: An adjustable rate mortgage (ARM) that can be changed to a fixed rate loan under certain conditions.
Cooperative (Co-op): This is a form of ownership where 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 unit or apartment.
Corporate Relocation: A corporate relocation is the moving of an employee by an employer to a different location. This may be part of the employee's individual career progress, or a result of the company's transfer of its operations and employees to another location due to the relocation of headquarters or expansion of office capacity.
Co-signer: A co-signer is an individual who signs a promissory note with the borrower to help them obtain a loan. Typically, the borrower would not qualify for the loan on his or her own, and a co-signer helps to guarantee that the loan will be repaid. The borrower and the co-signer are jointly responsible for the loan's payment, so it's not an arrangement to enter lightly.
Cost of Funds Index (COFI): The Cost of Funds Index is one of many published interest rate indexes used to calculate interest rate changes for adjustable-rate mortgage (ARM) plans. It reflects the weighted-average cost of borrowing and advances of the eleventh District members of the Federal Home Loan Bank located in San Francisco.
Counteroffer: A counteroffer is the implied rejection of an offer by presenting a new offer, or by accepting the offer based on certain conditions, or a slightly higher offer amount.
Covenant: A covenant is a pledge in a mortgage or deed that requires, or prohibits, specific uses of the property. Violation of this promise could result in loss or foreclosure of the property.
Credit: Credit in financial terms usually means the ability to borrow. A credit account, for example, involves an agreement in which money or an item of value is given to a borrower, on condition that the borrower repays the lender according to agreed-upon terms at a later date.
Credit Bureau (Credit Repository): A credit bureau or repository collects, records, updates, and reports financial and public records information regarding the payment history of individuals being considered for credit. Credit bureaus are the sources of credit reports and some credit scores used by lenders to evaluate loan applications.
Credit History: A credit history is a record of a person's history of debts and repayments. This documentation helps a lender to determine whether a potential borrower would be likely to repay the loan on time each month.
Credit Life Insurance: Credit life insurance guarantees that the loan is paid off in the event of the death of one of the borrowers during the course of the loan.
Credit Limit: A credit limit is the maximum amount that can be borrowed under a home equity line of credit or other credit line.
Creditor: A creditor is a person to whom money is owed. Another word for creditor is lender.
Credit Rating: A credit rating is a score that summarizes an individual's ability and tendency to repay their debts. It takes into consideration an individual's current financial status and past credit history in order to provide a rating of his or her creditworthiness.
Credit Report: A credit report is used by a lender to evaluate a potential borrower's ability and tendency to repay debts. The report, detailing an individual's credit history, is prepared by a credit bureau. See Merged Credit Report.
Credit Scores: Credit scores rank individuals according to their credit history at a specific point in time. They are represented as numbers, with higher numbers typically assigned to borrowers with the best track records. Among other factors, an individual's score is based on past payment history and the amount of outstanding credit. Credit scores have proven to be useful indicators in determining whether a borrower will repay his or her loan.
Cumulative Interest: Total interest accrued or added to a loan balance.
Curtailment: A curtailment is a loan payment, typically made ahead of schedule, which decreases the principal balance of a home loan--usually with the goal of saving interest expense, paying the loan off early, or both.