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Term Definition
Bird Dog
A person who identifies a beneficial real estate investment opportunity and passes information about the deal on to another investor for a fee.

Biweekly Mortgage
A mortgage in which payment is required every two weeks instead of monthly. This helps the borrower to repay the loan over a shorter term.

Blanket Mortgage
A single mortgage that covers multiple properties.

Board Of Equalization
A committee of persons at the state level who ensure that local property taxes are assessed in a uniform manner.

Board of Realtors
A group of real estate professionals who hold membership in the state and national Associations of Realtors.

Bond
(1) A written agreement from a bonding company. The agreement contains a guarantee that a person will properly carry out a specific act (for example, a court appearance, managing funds, or completing construction). If the person who purchased the bond does not complete his or her task, the bonding company will pay the aggrieved party an amount up to the value of the bond.

Breach of Contract
A violation of a legal agreement or contract. Also, a default on a loan or other payment.

Break-Even Ratio
Metric often used by commercial lenders to measure how vulnerable a property is to defaulting on its debt if rental income were to decline.

Bridge Loan
Financing for a mortgage that remains in effect between the end of one loan and the start of another.

Broker
An intermediary between two or more parties who is charged with the task of negotiating a transaction agreeable to all of the parties. The broker may arrange and negotiate loan amounts, interest rates, and loan terms between the parties. The broker may represent the borrower, the lender, or be neutral with no fiduciary responsibility to either party.

Building Permit
A statement of permission, in writing, from a local government or agency allowing the recipient to build a particular structure at a particular site.

Bundle of Rights
A group of implied rights in the ownership of any real estate property. These include the owner’s right of occupancy, use and enjoyment, the right to sell in whole or in part, the right to lease any or all of the rights, the right to the benefits derived by occupancy and use of the property, and so on.

Buy Down
A payment of discount points in exchange for a lower rate of interest. A buy down provides the lender with a greater yield immediately, in trade for a lower yield in the future. (See definition of "discount points" below.).

Call Option
A clause contained in a loan agreement that gives the lender the power to ask for the outstanding balance at any time.

Cancellation Clause
A stipulation in a contract that gives one or both parties the right to terminate its obligations if a specific condition or event occurs.

Cap
A stipulation of an adjustable-rate mortgage (ARM) that limits the increase or decrease of interest rates or loan payments. In upward rate markets, this provision 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 generate income, as an investment in a business or as an income property. (2) A person or business’ total wealth owned or used including money and property. (3) The accumulated wealth of a person or business. (4) The net worth of a particular business represented by the amount by which its assets exceed liabilities.

Capital Expenditure
The cost of an improvement made to increase the value of a property or extend its useful life, for example, by adding a new room. Costs associated with repair are not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

Capital Improvement
Any permanent improvement to a structure or component that adds to a real property’s value and useful life. (See Capital Expenditure).

Capitalization (Cap) Rate
The rate of return used to calculate the capital value of an income stream. To find the cap rate, net operating income is divided by annual income.

Capitalization Rate (Cap Rate)
Net Operating Income (NOI) divided by the Purchase Price or Value. Expressed as a percentage. This is one of the most common metrics for measuring the property's performance before taking financing into account. A Cap Rate of 10%, for example, means that if you were to purchase that property for all cash, you would earn 10% return on your investment.

Carrying Charges
The expenses necessary for holding a property. These may include interest and taxes on an idle property or one under construction.

Cash Flow
The total of all debt service payments subtracted from the net operating income will yield the cash flow. (See definition of "net operating income" below.)

Cash Flow Basis
A calculation that shows when your monthly payment savings will exceed your estimated closing costs and discount points. The cash flow basis does not take into account the tax impact or differences in principal balance reduction between your current loan and refinancing suggestions.

Cash on Cash Return
Property's cashflow in a given year divided by the total amount of initial investment (plus any additional capital expenditures not financed). Expressed as a percentage. Can be looked at on a Before- and After-Tax basis. This calculation does not take in account any time value of money, so is mostly used to measure cashflow in the first year.

Cash Out
Cash paid to the borrower from the proceeds of a loan. While quite frequently seen in refinancing situations, cash out may also occasionally be seen as a benefit of a small percentage of non-conforming loans used for a purchase.

Cash-Out Refinance
A transaction in which the new loan amount exceeds the total of the principal balance of the first mortgage and any secondary mortgages or liens, taking into consideration 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. In this transaction, a borrower borrows against his or her home equity.

Caveat Emptor
A Latin phrase meaning, "Let the buyer beware."

Certificate of Eligibility
A certificate issued to people who qualify for a Veterans Administration loan.

Certificate of Insurance
A document verifying a policy’s coverage issued by an insurance agency.

Certificate of Occupancy (C.O.)
A document that permits a structure to be occupied by members of the general public. A local government or agency issues this certificate.

Certified Commercial Investment Member
One of several designations awarded by the Realtors National Marketing Institute, an affiliate of the National Association of Realtors.

Certified Residential Broker (CRB)
One of several designations awarded by the Realtors National Marketing Institute, an affiliate of the National Association of Realtors.

Certified Residential Specialist (CRS)
One of several designations awarded by the Realtors National Marketing Institute, an affiliate of the National Association of Realtors.

Chain of Title
A history of conveyances and encumbrances that are applied to a title. The chain of title may reach back to the original granting of the patent, or as far back as available records allow.

Clear Title
A title that is marketable and free of disputed interests.

Closing
A formal meeting where loan documents are signed and funds disbursed. For certain loans in which a personal residence or residences serve as the security, federal law may mandate that funds are not to be disbursed for three business days. (See definition of "recission" below.)

Closing Costs
Expenses that a borrower incurs to complete the loan transaction, including title searches and insurance, closing fees, recording fees, processing fees, and other miscellaneous charges.

Closing Date
The seller delivers the deed and the buyer pays for the property on this date.

Closing Statement
An accounting of funds for a real estate transaction. This may also be known as a HUD-1.

Cloud on Title
An outstanding claim or other obstacle thatwould affect or impair the owner's title if it were valid.

Coinsurance Clause
A provision in a hazard insurance policy that states the minimum amount of coverage that must be maintained for the insured to collect the full amount of a loss. This amount is usually stated as a percentage of the property’s value.

Collateral
property offered and designated as debt security.

Collectors Deed
The holder of the Certificate of Purchase may apply for and receive a Collectors Deed to the property in the event that the property has not been redeemed during a one-year redemption period.

Combined Loan-to-Value (CLTV)
The total of all loans, stated as a percentage of the value of a property. For example, if a property is valued at $100,000 and has 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 on condition of a list of requirements that must be satisfied prior to funding actually taking place. Conditions may include but are not limited to appraisals of a certain value, a clean title, verification of representations by the borrower, and so on.

Comparable Sales
Recently sold properties that will be compared with a property being appraised for the purpose of determining the value of the property in question. When appraising a city property, comparable sales must have the same use as the property being appraised, and many similarities in the size of the house, size of the lot, amenities, etc. and be in the same neighborhood and have been sold in the recent past (usually no more than six months) to someone who is not a friend or relation. The comparable property must also be located within one mile of the subject property. More liberal standards will apply for rural property and some suburban properties. However, the value assigned to the subject property will be more accurate the more similar the comparable sales are to the subject property. 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
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 meets the strict underwriting criteria and guidelines of Fannie Mae, Freddie Mac, FHA or VA loans. These are typically low-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 a party to enter into a contract.

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