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Term Definition
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.

Contiguous
Two sides that actually touch and/or share a common boundary.

Contingency
A stipulation in the contract that must be met before it takes effect and becomes legally binding. Home purchasers often include a contingency that specifies that the contract is not legally binding until the purchaser obtains a satisfactory home inspection report.

Contract
An agreement between two or more parties to do (or not do) certain things in exchange for consideration. (See definition of "consideration" above.)

Contract For Deed
A real estate installment selling arrangement whereby the buyer may use and occupy the land or property, but no deed is actually given by the seller until all or part of the sale price (specified in the contract) has been paid. Same as land contract.

Contractor
A person who provides specific goods or services under the terms of a contract.

Conventional Loan
A conforming loan that does not have a government guarantee. Freddie Mac loans and Fannie Mae loans are two examples of this type of loan. (See definition of "conforming loan" above).

Conversion
The act of changing a property to a different use or type of ownership.

Convey
The act of transferring a title to another party.

Cooperative (co-op)
A type of ownership by several parties. The residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property. Under the terms of the contract, each resident is given the right to occupy a single, specific unit in the complex.

Counteroffer
The act of rejecting an offer, but making an immediate new offer in its place.

Creative Financing
Refers to any financing arrangement other than a traditional mortgage supplied by a third party institution.

Credit Line
A loan that allows revolving use of the credit. After the borrower repays borrowed funds, he or she may borrow funds again without needing to apply for a new loan. There is usually an established limit of available credit and some or all of the available funds can be optionally disbursed at closing. Undisbursed funds are available for the borrower’s use at any time. Payments are required only on the outstanding balance. A credit line resembles a credit card except that the borrower usually uses checks to access the funds. Credit lines are inexpensive and useful tools for investors.

Cumulative Cash on Cash Return
Total cashflow to date divided by the total amount of initial investment (plus any additional capital expenditures not financed). Can be looked at on a Before- and After-Tax basis. The point where Cumulative Cash on Cash passes 100% is the point where the investor gets their entire investment back.

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