Cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.

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.

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).

Clear Title

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

Closing

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

The final step before you get the keys to your home is a formal meeting called the closing. It is at this meeting in which ownership of the home is transferred from the seller to the buyer.

Also called a settlement in some parts of the country, the meeting is typically attended by the buyer(s), the seller(s), their attorneys if they have them, both real estate sales professionals, a representative of the lender, and the closing agent. The purpose is to make sure the property is physically and legally ready to be transferred to you.

Several closing costs will be paid at this meeting. These expenses are over and above the price of the property and are incurred when ownership of a property is transferred. Closing costs generally include a loan origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance, and a survey. Closing costs vary according to the area of the country.

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 are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.

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. Closing costs percentage will vary according to the area of the country; lenders or realtors® often provide estimates of closing costs to prospective homebuyers.

Before a property can be transferred from one owner to another, closing costs must be paid. These costs may run anywhere from 3 percent to 6 percent of the total amount of the mortgage. You may be able to negotiate with the sellers to have them pay some of these costs.

Items that must be paid at closing vary across the country, but they often include title insurance, a survey fee, discount points, transfer taxes, and document preparation fees.

Closing Date

After your lender has approved your mortgage and you accept the commitment letter, the next step is to set a closing date. Many times, your real estate sales professional coordinates the setting of this date with you, the seller, the closing agent, and your lender.

Remember, you need to ensure that the closing occurs before your lender's commitment letter -- and the rate lock-in, if there is one -- expire. You can now finalize your moving plans.

Closing Statement

HUD-1 Settlement Statement

The HUD-1 Settlement Statement itemizes the amounts to be paid by the buyer and the seller at closing. The (blank) form is published by the U.S. Department of Housing and Urban Development (HUD).

Items on the statement include:

• real estate commissions,
• loan fees,
• points, and
• escrow amounts.

The form is filled out by your closing agent and must be signed by the buyer and the seller. The buyer should be allowed to review the HUD-1 Settlement Statement on the business day before the closing meeting to know the closing costs in advance.

The HUD-1 Settlement Statement is also known as the "closing statement" or "settlement sheet."

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 endorser.

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.

Collateral is an asset (such as a home) that secures 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.

When reviewing collateral, lenders will want to ascertain whether they will be fully protected should you fail to repay your mortgage. Lenders ensure that the home you are purchasing - the collateral - has a market value that covers the amount of money they are lending in case they are forced to foreclose on the property.

One way lenders do this is by paying close attention to the property appraisal, ensuring that should you default, they will not face losses.

Collection

The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

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 Letter

A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

The commitment letter states the dollar amount of the loan being offered, the number of years you have to repay the loan, the loan origination fee, the points, the annual percentage rate, and the monthly charges.

The letter also states the time you have to accept the loan offer and to close the loan. Make sure you understand all aspects of the commitment letter because by signing it, you indicate your acceptance of its terms and conditions.

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.

Compound Interest

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

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.

You should also research how much it will cost to make any repairs to the home you want to buy. This will assist you in making the best offer possible for the home.

Also, if you are buying an existing home, you may want to consider including a contingency in your sales contract that calls for a professional home inspection. This can provide you with the peace of mind of knowing that your potential home has been inspected for structural flaws and any electrical, plumbing, heating and cooling, and other systems work properly.

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.

A condominium, or "condo," is a type of joint real estate where each housing unit is individually owned and all residents collectively own the common areas of the building. Sometimes, owners may have the exclusive use of certain limited common areas.

Common areas can include grounds, lobbies, elevators, hallways, surrounding property, and recreational facilities.

Construction Contract

The terms and conditions of any major renovation job should be part of a formal, legally binding contract between you and your contractor --this is called the construction contract. 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

In your purchase offer, you may consider stating that the seller must make sure the electrical systems, heating and cooling, plumbing, and mechanical systems are functioning properly at the closing. 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. These are both ways to ensure that surprises don't arise when your moving day arrives.

If you do not include this clause in your contract, you are essentially accepting the house "as is."

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 Financing

When you make a formal offer on a house, your contract should include a financing contingency. It specifies if you don't get the money you need to purchase the house at the terms you want, the offer is void and you will be refunded your deposit.

Don't be surprised if 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.

Contract

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

Conventional Mortgage

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

Convertible ARM

An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

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.

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. See adjustable-rate mortgage (ARM).

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

The three main credit reporting agencies, or credit bureaus, 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 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.

When a lender reviews an applicant's credit history, the lender examines all the information in a credit report. These include your credit cards, student loans, automobile loans and other loans.

The lender reviews how you have made your payments - on time or late. Your credit report also notes whether any of your creditors discharged a debt because they believed it would never be repaid, you declared bankruptcy, or your home had been foreclosed.

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 Profile

There are several ways to ensure you have a good credit report and credit score. One of the most effective is to manage your existing credit in a positive way.

Ask your lender for suggestions about ways to control the amount of money you owe. Or, you can choose a credit counselor from the list provided on this site. Some lenders may view consumers as a greater risk if they have used most or all of their available credit. Consumers who are considered "overextended" may be viewed this way even if they have made all their debt payments on time.

Missing a payment on a bill should be avoided, as should late payments on any of your credit obligations. Experiencing a mortgage foreclosure, filing for bankruptcy, or having your vehicle repossessed can also affect your credit score and credit report, limiting your ability to get new credit at a reasonable rate.

Credit Report

A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

One of the most frequently used ways for lenders to evaluate your credit profile is to access your credit report. If you are trying to purchase a home with a co-borrower, that person’s credit report will also be reviewed. The three major sources of credit information are Equifax, Trans Union, and Experian.

Many lenders across the country access our automated underwriting system - Desktop Underwriter^®. This advanced technology uses a "three-file merged credit report," which means all three credit agencies' reports are combined into one, reducing the costs of accessing the reports separately. This translates into cost savings for you during your closing.

The information contained in the report focuses on how you have managed your debt over time. The information includes the length of time you have had credit cards and how you have used them. There’s also a review of how promptly you have paid your credit card bills.

Additionally, the report lists any auto or other consumer loans that you have and shows your record for payment.

When you talk with your mortgage lender, you may want to ask how they decide if you’re a good credit risk. One way is credit scoring, which is a measure of how a borrower manages credit.

Credit Report Fee

The credit report fee covers the lender's cost for ordering your credit report from a credit bureau.

This report will verify some of the information you provided on your loan application as well as additional information from the credit agency's files and from public records.

When a credit report is received, your lender will check it against your application and look for any discrepancies. You may be asked to explain information in your credit report.

Credit Reporting Agency (or bureau)

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, or credit bureaus, 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 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.

Credit Scoring

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. The scores used in mortgage lending are typically in the 300 to 900 range. A general guide is that the higher your score the better. But you should keep in mind that your credit score is just one of several factors that will be used to evaluate your mortgage loan application.

It is important to know that your credit score is based solely on information in your credit report. Factors such as race, age, religion, national origin, marital status, gender, income, where you live, and employment are not considered in determining your credit score.

The lender uses credit scoring to objectively and quickly review your credit history. The number or "score" is tallied by the credit information provider -- not your lender. It is determined by such factors as:

• Credit history: A track record of how you have paid your past debts provides an indication to lenders about how you will pay them in the future.
• Outstanding debt: Your lender will want to know how many open charge accounts you have and if you hold other consumer loans.
• Payment history: Your lender will review whether your bills were paid on time or after they were due. Sometimes, a record of paying your bills after their due date can lower your score.
• Types of credit: Your lender will want to know the types of credit you use.
• Credit inquiries: Every time you allow a lender to review your credit history, an "inquiry" is recorded in your credit report. Having many recent inquiries may suggest your use of credit is increasing, which is often viewed as more risky for the lender. However, auto and mortgage loan inquiries in the 30 days prior to the score being calculated are not used.

Creditor

A person to whom money is owed.