Real Estate Glossary

C

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 (interest rate)
Refers to the maximum allowable interest rate increase on an adjustable-rate mortgage. Such "caps" are generally applied both to the periodic changes as well as the absolute changes in the interest rate over the life of the loan. Most ARMs have a periodic interest rate cap that is around 2% a year and a lifetime interest rate cap of around 5%-6% over the life of the loan.

Capital Gain
The profit from the sale of a capital asset, including real property.

Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash Flow
The resulting amount when annual debt service, tax liability and capital improvement costs are subtracted from net operating income.

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.

Cash Reserve
Amounts of money usually equal to two or more monthly payments of a mortgage, which a lender requires a borrower to have after the closing of the mortgage.

Caveat Emptor
A legal term meaning "let the buyer beware".

Certificate of Completion
A document normally issued by an appraiser which states that a construction project is completed in accordance with the building plans and specifications which pertain to the project.

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 eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Certificate of Occupancy
Written authorization given by a municipality which allows a newly completed or remodeled 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 Title
A statement provided by an abstract company, title company, or attorney stating that the current owner legally holds the title to real estate.

Cistui Que Trust
One having an equitable interest in property, legal title being vested in trustee.

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.

Chattel
Term used to describe personal property.

Clear Title
Title to a parcel of real estate that is not encumbered or "clouded" with defects or liens.

Closing
The occasion on which a real estate transaction or mortgage is finally settled ("closed") between the parties. The title of the property is transferred to the new owners and funds are transferred to the appropriate parties (seller, lender, real estate broker, etc).

Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring the ownership of a parcel of real estate. Also refers to the costs (over and above the amount of the mortgage) incurred by a borrower upon "closing" of a mortgage. Also referred to as "settlement costs".

Closing Statement
Also referred to as the HUD1. The final settlement of costs incurred to close on a loan or to purchase a home.

Cloud on Title
Any conditions revealed by a title search that adversely affects the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

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.

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 endorser.

Combined Loan-To-Value (CLTV)
The relationship between the unpaid principal balances of all the mortgages on a property (first and second usually) and the property's appraised value (or sales price, if it is lower).

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally paid as a percentage of the sales price in a real estate transaction or of the loan amount in a mortgage transaction.

Commitment
An agreement, verbal or written, made by a lender to loan money to a borrower subject to compliance with certain conditions. Also referred to as a "loan approval" or "notification of loan approval".

Community Property
Real property acquired during a marriage.

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 been recently sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Conditional Commitment
A lender's promise to issue a loan subject to certain stipulations. Generally, the lender will not fund the loan until the conditions have been met.

Conditional Offer
Purchase offer in which the buyer proposes to purchase only after certain occurrences (sale of another home, finding a loan commitment, etc.) have transpired.

Condominium
A multiunit project consisting of individual ownership of a dwelling unit and undivided ownership of common areas.

Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Conforming Loan
The current conforming loan limit is $300,700 and below. Conforming loan limits change annually.

Consideration
Anything of value given to induce another to enter into a contract. An earnest money deposit on a sales contract is consideration.

Construction Contract
An agreement between a general contractor and an owner which sets forth the terms and conditions under which building shall occur on a parcel of real estate, and provisions for the owner's payment to the general contractor for such building.

Construction Loan
A short-term, interim loan for financing the cost of construction in which the lender advances funds at periodic intervals as the construction progresses.

Construction Loan Agreement
A written agreement among a lender and a builder and/or owner in which the specific terms of a construction loan, including the schedule of disbursements, are set forth.

Construction Loan Draw
The partial disbursement of the proceeds of a construction loan based on the disbursement schedule in a construction loan agreement and the progress of completion of the project.

Consumer Reporting Agency (or bureau)
An organization that prepares reports that is 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.

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 two or more competent parties to do, or not do, some legal act for a legal consideration.

Contract of Sale
A purchase transaction in which the buyer receives possession of the property, but the seller retains title.

Conventional Mortgage
A real estate loan granted that is neither FHA-insured nor VA-guaranteed.

Convertible ARM
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions. The conversion is outlined in the mortgage note and has certain restrictions.

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 time frames after loan origination. At the time of the conversion, the new fixed rate is set at a rate then prevailing for fixed-rate mortgages. The conversion feature may be available at extra cost.

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.

Corporation
A form of business organization recognized as a separate entity (legal person) having rights and obligations distinct from its shareholders and/or officers and directors.

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 Basis
Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on permanent improvements and other cost, minus any depreciation claimed on tax returns over the years.

Cost Estimate
A document which breaks out the various costs of construction of a structure by item. Also referred to as "cost breakdown".

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.

Cost per Square Foot
A property's cost per square foot normally determined by dividing the property's sale price by the square footage of the structure. Cost per square foot does not take lot size into account and should only be used as a basis of comparison when looking at properties of similar lot size, date sold, and other characteristics.

Cost-Plus Contract
A construction contract in which the contract price is equal to the cost of construction plus a profit allowance to the builder; as opposed to a fixed bid contract.

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 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 Report
A report prepared by a credit reporting agency for a lender which sets forth the credit standing of a prospective borrower, and which is used in the process of determining the borrower'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.