| Call Option – A clause in a loan agreement that allows a lender to ask for the balance at any time.
Cancellation Clause – a contract provision that gives the right to terminate the obligations upon the occurrence of specified conditions or events.
Cap – a provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.
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, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are
subtracted from income for the current year.
Capital Improvement – any structure or component erected as a permanent improvement to real property that adds to its value and useful life. (See Capital Expenditure).
Capitalization (Cap) Rate – rate of return used to derive the capital value of an income stream, divide annual income by net operating income.
Carrying Charges – expenses necessary for holding property, such as taxes and interest on idle property or property under construction.
Cash Flow – The net operating income minus the total of all debt service payments. (See definition of “net operating income” below.)
Cash Flow Basis – this calculation shows when your monthly payment savings exceed your estimated closing costs and discount points. It does not consider the tax impact or differences in principal balance reduction between your current loan and the refinance suggestions. You can use the Amortization Schedule Calculator to compare principal reduction.
Cash Out – Cash given to the borrower from the proceeds of a loan. While relatively common as part of a refinance, it is uncommon, but not impossible, as a benefit of a small percentage of non-conforming loans used for a purchase.
Cash-Out Refinance – a refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement, or any other purpose. The borrower effectively borrows against the home equity.
Caveat Emptor – let the buyer beware.
Certificate of Eligibility – issues by the Veterans Administration to those who qualify for a VA loan.
Certificate of Insurance – a document issued by an insurance company to verify the coverage.
Certificate of Occupancy (C.O.) – a document issued by a local government or agency permitting the structure to be occupied by members of the public.
Certified Commercial Investment Member (CCIM) – a designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors.
Certified Residential Broker (CRB) – a designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors.
Certified Residential Specialist (CRS) – a designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors.
Chain of Title – a history of conveyances and encumbrances affecting a title from the time that the original patent was granted or as far back as records are available.
Clear Title – a marketable title, one free of clouds and disputed interests.
Closing – The formal meeting where loan documents are signed and funds disbursed. Note, however, that Federal law requires that funds not be disbursed for three business days on certain loans where personal residences serve as the security. (See definition of “recission” below.)
Closing Costs – The expenses which borrowers incur to complete the loan transaction. These costs may include title searches, title insurance, closing fees, recording fees, processing fees and other charges.
Closing Date – the date on which the seller delivers the deed and the buyer pays for the property.
Closing Statement – an accounting of funds from a real estate transaction, also known as a HUD-1.
Cloud on Title – an outstanding claim or encumbrance that, if valid, would affect or impair the owner’s title.
Coinsurance Clause – a provision in a hazard insurance policy stating the minimum amount of coverage that must be maintained – as a percentage of the total value of the property – in order for the insured to collect the full amount of a loss.
Collateral – property pledged as security for a debt.
Collectors Deed – If the Property has not been redeemed during the one-year redemption period, the holder of the Certificate of Purchase may apply for and receive a Collectors Deed to the property
Combined Loan-to-Value (CLTV) – The total of all loans relative to the value of the property. If a property has a value of $100,000 and three loans totaling $125,000, the CLTV is 125% ($125,000 / $100,000).
Commitment – The notification that a lender has approved a loan. Virtually all commitments are issued conditionally; that is, subject to some list of conditions that must be satisfied prior to funding actually taking place. Typical conditions include appraisals of a certain value, clean title, verification of representations by the borrower, etc.
Comparable Sales – As part of the appraisal process, those relatively recently sold properties which will be compared to the subject property (the property being appraised) for the purpose of forming an opinion of value for the subject property. The facts and details of the comparable properties will be compared to those of the subject. In an urban setting, to be of credible assistance in this process, comparable sales must have the same use as the subject, have many similarities to the subject in terms of size of house, size of lot, construction, bedroom count, room count, floor plan, amenities, street traffic and be in the same neighborhood and have been sold in the recent past (preferably no more than six months) by way of an “arms length” transaction (i.e., not sold to a relative or friend and not sold due to a forced sale or distress sale) and be within one mile of the subject property. More liberal standards will apply for rural property and some suburban properties but the basic premise holds, the more similar the comparable sales are to the subject property, the more accurate the value assigned to the subject property will be. Lenders will often compensate for the less precise nature of rural appraised values by allowing only lower loan-to-value ratios than those in urban settings, usually 10% lower. (See definition of “loan-to-value” below.)
Conditions, Covenants, and Restrictions (CCR’s) – promises written into deeds and other instruments agreeing to performance or nonperformance of certain acts, or requiring or prohibiting certain uses of the property.
Conforming Loan – A loan which has underwriting criteria consistent with (i.e., conforming to) those strict guidelines of Fannie Mae, Freddie Mac, FHA or VA. These are typically the lowest interest rate loans with very good terms. (See definitions of “Fannie Mae”, “Freddie Mac”, “FHA”, “VA” and “underwriting” below.).
Consideration – anything of value given to induce entering into a contract.
Contiguous – actually touching, having a common boundary.
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 agreement between competent parties to do or not do certain things for consideration.
Contract For Deed – a real estate installment selling arrangement whereby the buyer may use, occupy, and enjoy land, but no deed is given by the seller until all or a specified part of the sale price has been paid, same as land contract.
Contractor – one who contracts to provide specific goods or services.
Conventional Loan – A conforming loan with no government guarantee; that is, a Fannie Mae or Freddie Mac loan. (See definition of “conforming loan” above.).
Conversion – changing property to a different use or form of ownership.
Convey – to deed or transfer title to another.
Cooperative (co-op) – a type of multiple ownership in which 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 specific apartment or unit.
Counteroffer – rejection of an offer with a simultaneous substitute offer.
Creative Financing – any financing arrangement other than a traditional mortgage from a third party lending institution.
Credit Line – A loan that allows revolving use of the credit; that is, after funds have been borrowed and repaid they may be borrowed again without applying for a new loan. Typically, a credit limit is established and some or all of the available funds can be optionally disbursed at closing. Undisbursed funds are available for the borrowers use at any time. Payments are required only on the outstanding balance. They are similar in use to a credit card except that they typically use checks to access the funds. They are inexpensive, effective tools for investors.
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