MORTGAGE TERMINOLOGY

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.

Cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See also "Lifetime Payment Cap", "Lifetime Rate Cap", "Periodic Payment Cap", and "Periodic Rate Cap."

Capacity

The ability to repay mortgage debt. Lenders base their evaluation of capacity information, income expenses and other debt obligations.

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) ARM

An adjustable rate mortgage in which the initial interest rate and payments adjust every six months after an initial six-month period according to changes in the market interest rates on six-month negotiable CDs.

Census Tract

Six digit number designated by HUD to identify a neighborhood. Census tract numbers are entered on compliance reports to monitor a lender's mortgage activity.

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.

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. See also "CD-Indexed (Certificate of Deposit) ARM" entry

Certificate of Eligibility

A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificates of Insurance

A form which evidences policy coverage, limits, etc., which is generally used as proof of insurance. These forms have no legal status and cannot be used in lieu of actual insurance policies.

Certificate of Occupancy

Written authorization given by a local municipality that allows a newly completed or substantially renovated structure to be inhabited.

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 Sale

An affidavit issued the buyer of real property at a judicial or tax sale which guarantees the deed of the parcel purchased, pending court confirmation.

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

Amendments to a construction contract after construction begins in order to make unplanned changes to the work. A contingency reserve covers unforeseen repairs or deficiencies found during renovation. Unnecessary additions or changes are considered discretionary and must first be approved by the lender.

Chapter 11

A reorganization by a business allowing the debtor to maintain operating control of the business while restructuring debts and working out a repayment schedule acceptable to the creditors. Also called "debtor in possession."

Chapter 13

A debt repayment plan where an individual debtor files a budget with the court and agrees to make partial payment to creditors over a three-to-five year period. Also called "wageearner plan."

Chapter 7

Bankruptcy filing which gives a trustee the power to distribute a debtor's assets to creditors. Also called a "liquidation."

Chattel

Another name for personal property.

Chattel Mortgage

An agreement between a secured party and a debtor creating a security interest in personal property.

Clear Title

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

Clearing Account

A bank account used by a mortgage servicer for temporary, short-term deposit of mortgage payments collected for transmittal to investors or for deposit in escrow accounts.

Closed-End Mortgage

A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also: open-end mortgage.

Closed (Exclusive) Listing

The right of one agent to be the only one, other than the owner, who may sell the property during a period of time.

Closing

A meeting at which the sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

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

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. Fees Paid to the Lender Fees Paid in Advance Other Charges

Closing Date

The date on which a loan transaction is completed. Often a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

Closing Statement

A financial disclosure giving an account of all funds received and expected at closing, including escrow deposits for taxes, hazard insurance, and mortgage insurance. All FHA, VA, and most conventionally financed loans use a uniform settlement statement called the "HUD-1." See "HUD-1 Settlement 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 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"

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.

Combined Loan-to-Value

The principal balance of all mortgages on the property (including second and third trusts) divided by the value of the property.

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 Fee

Any fee paid by a potential borrower to a potential lender for the lender's promise to loan money at a specified date in the future. The lender may or may not expect to fund the commitment. In secondary marketing, a fee paid by the loan seller to the investor in return for the investor's promise to purchase a loan or package of loans at a future date.

Commitment Letter

A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. See also "Loan Committment"

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 Association

A group composed of property owners that serves to protect and maintain a neighborhood or commonly owned properties.

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.

Co-Mortgagor

A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the mortgagor's for underwriting and ratio analysis purposes. The co-mortgagor's name must appear on the FHA Certificate of Commitment and the mortgage or deed of trust. For full guarantee under the VA's program, the co-mortgagor must be either a spouse or another eligible veteran.

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.

Compensating Factor

A positive characteristic of a mortgage applicant which may offset a negative factor.

Compliance Inspection Report

A report given a lender by a designated compliance inspector indicating whether construction or repairs conform to conditions established by prior inspection.

Compound Interest

Interest paid on the original principal balance and on the accrued and unpaid interest.

Co-Mortgagor

One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.

Concessions

A discount or other inducement given by a landlord or seller to a prospective tenant or buyer to induce them to sign a lease or purchase property.

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.

Conditional Commitment

An agreement to lend money to a borrower that has yet to be identified, but is still subject to the approval of the lender. During HUD/FHA mortgage insurance processing, it indicates the satisfactory completion of technical processing involving the estimated cost of the project, the "as-is" value of the site, a detailed estimate of operating expenses and taxes, supportable costs, the financial and credit capacity of sponsors, financial requirements, and mortgage amounts.

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 Association Fee

A fee paid by the homeowner to the association which governs a condominium complex for his/her part of the maintenance and management of the project.

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.

Conforming Loan

A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.

Consideration

Something of value offered and accepted in exchange for a promise, without which a contract is unenforceable.

Constant Payment

Periodic payment of a fixed amount that includes interest and principal. As the loan amount reduces, the portion of the payment applied to the principal increases. Standard home mortgages are constant payment loans.

Construction Contract

The terms and conditions of any major renovation job as stated in a formal, legally binding contract between you and your contractor. 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

A contingency in a purchase offer that the offer is dependent on the proper functioning of electrical, heating, cooling, plumbing, and mechanical systems. 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.

Consummate

To bring to completion.

Contiguous Property

Adjoining property or parcel of land.

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

A contingency in a purchase contract 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

A contingency in a purchase contract specifies that if you do not get the mortgage financing you need to purchase the house at the terms you want, the offer is void and you will be refunded your deposit. Generally, 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

A contingency in the purchase contract specifies what appliances, fixtures, and other personal property must remain in the home.

Contingency Reserve

An amount of funds held in a reserve account to cover the cost of any unforeseen repairs or deficiencies are found during renovation. 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.

Contract

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

Contract of Sale

Legally binding agreement between a purchaser and seller of real property to convey title after certain conditions have been met and payments have been made.

Contractor

A person who oversees a construction project and handles aspects such as scheduling workers and ordering supplies.

Contribution

A cash or other concession by the seller of a property in order to induce a purchaser to buy that property.

Conventional Mortgage

A mortgage that is not insured or guaranteed by the federal government. Contrast with "Government Mortgage."

Convertibile Mortgage

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.

Convey

The act of transferring title to real property from one party to another.

Conveyance

The document, such as a deed, lease, or mortgage, used to effect a transfer.

Cooling-off Period

A period of time, provided by law or by contract, during which a party to a contract can legally back out of a contract.

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.

Co-Signer

One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor.

Cost Approach to Value

A valuation approach in which the value of a property is determined by computing the replacement value of improvements, depreciation, and the value of the land.

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.

Costs for Settling Into Your Home

The costs associated with getting into your home can include the cost for repairs that need to be made before you can occupy your residence or the cost of purchasing appliances, such as a washer and dryer, refrigerator, or stove.

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

See "Credit Reporting Agency"

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 Report

A report of an individual's credit history, including open and fully repaid debt. The credit report is prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Reporting Agency

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 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 Score

A numerical value that ranks a borrower's credit risk at a given point in time. 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. Your credit score is just one of several factors that will be used to evaluate your mortgage loan application.

Credit Union

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.