Capitalization Rate: The rate of return on net operating income considered acceptable to an investor. It is also used to determine the capitalized value. This rate should provide a return on capital as well as a return on the initial investment.

Capacity: The ability to make mortgage payments on time, depending on income and income stability, assets, reserves and the amount of income each month that is available after paying housing costs, debts, and other obligations.

Also being legally able to enter into a contract.

Capital/cash reserves: The cash reserves (savings), investments or assets possessed by an individual.

Cardholder Agreement: The written terms of a credit card account. Terms are regulated by the various consumer laws for the protection of consumers; which means that the law establishes a ceiling on interest rates that may be charged for various grades of credit.

Cash Advance: Cash/currency drawn against the credit line or credit card account. Interest on the advance is typically charged immediately. There is no grace period and a fee for advancement of the cash is usually charged. The interest rate for cash advances is typically higher than that of regular purchases. The fees for cash advances are usually the very highest in credit card financing fees.

Cash Advance Fees: A dollar amount charged for the convenience of making a cash draw against the available credit on a credit card account. The fee is typically 2 to 4% of the cash or convenience check can range from $25 to $75 per drawn. This can make the interest rate astronomical!!! Read the fine print on your credit agreement before you do this.

Cash Flow: The amount of money coming into a business or a person’s accounts. It is hopefully balanced so that the amount coming in exceeds the amount of cash going out to pay recurring expenses and savings. A negative cash flow indicates that the cash coming in is not sufficient to cover the bills needing to be paid out.

Cash Equivalent Value: In appraisal this is a method of calculating the appraised value of a property that considers sales and financing concessions when evaluating comparable properties.

Cash Out: A loan transaction in which the borrower receives funds at the time of closing. Cash out refinances are very common.

Cash Reserves: A typical loan condition for a lender making a mortgage loan. It requires that sufficient funds are available in the borrower’s savings, investment, or other liquid assets after the closing. A lender does not wish to make a loan to a borrower who has used every bit of available cash to purchase the property. Additional funds are usually needed by a new homeowner for adjusting to the new payment along with any upgrades to furnishings or the property itself.

Certificate of Eligibility: The document issued by the Veteran’s Administration that verifies a veteran’s eligibility for a VA mortgage. It is issued by the Department of Veteran Affairs.

Certificate of Occupancy: Authorization from a municipality that allows a newly completed or substantially completed building to be occupied.

Certificate of Reasonable Value (CRV): A document issued by the Veterans Administration, which establishes a maximum value and loan amount for a VA guaranteed mortgage. It is used in place of an appraisal for VA loan purchases or cash out VA refinances. See VA.

Certificate of Title: A statement by a title or abstract company or attorney stating that the title to a property is legally held by the current owner.

Chain of Title: A history of all documents transferring title to a parcel of property. This begins with the earliest existing evidence of documents and ends with the most current.

Charge Card: A short-term credit card that requires full payment of the entire balance each and every month. American Express and Diners Club are examples of charge cards. MasterCard and VISA are also called charge cards in everyday usage.

Charge-Off: A balance that a lender or creditor removes from their accounts receivable (or “books”) and places it into another area of their bookkeeping. The debt owed is essentially “written off” their accounts receivable and placed into their Collection department. The balance is still owed by the consumer and a collection agency may be hired to collect the debt. The initial lender may also sell the debt to a company who specializes in collecting “bad” debts. A charge-off on a credit report can take 40 points off of a person’s credit score.

Chattel Mortgage: A lien or security interest on personal property.

Chronic Delinquents: Borrowers who are seriously or repeatedly late in making payments and the lateness is not caused by circumstances beyond their control. These are also called “Slow Pays”.

Civil Proceeding: A lawsuit or legal action between two or more parties in civil court

Claim: A request made to your insurance company to collect for damages suffered by you. This can include home, car, or medical claims.

Closed Account: Any account that is closed to any further borrowering. A closed account is usually reported by credit card lenders. If they lender/creditor reports the account as “Closed by creditor” this is a negative to the consumers credit score. If the account was closed by the consumer, it should be properly recorded as closed by consumer. An account that is closed by the consumer is not necessarily a negative, but can become one. The timing of closing the account is crucial.

Closed End Lease: The most common type of lease for a vehicle. The lessee returns the car at the end of the lease and any left over costs are paid at that time. It also ends the agreement.

Closing: In real estate it is the delivery or recording of a deed, financial payments and/or adjustments, the signing of notes, and the disbursement of funds necessary to consummate a sale or loan transaction. In some states, it is also called an Escrow Closing or Close of Escrow. In other parts of the country it can also be called a Settlement. See HUD1

Closing Agent: The person or organization having a fiduciary responsibility to the buyer, seller, and the lender (or borrower and lender) to see that the terms of the purchase or sale contingencies are completed. The closing agent can take instruction from all parties associated with the transaction, but all parties must agree for any change to result in differences to the initially agreed upon contract for purchase of real estate. Closing agents are also called escrow officers or agents.

Closing Costs: An investment of cashpaid by the borrower to purchase a property and to secure a loan for that property. Closing costs can include an origination fee, discount points, appraisal, credit report, title insurance, attorney’s fees, survey, inspection fees, termite inspection fees, prepaid interest and other prepaid items such as taxes and insurance.

Closing Statement: The documentation prepared by the closing agent that describes the actual accounting of the property involved. A closing statement will give an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance and mortgage insurance. It will also show the buyers’ and sellers’ costs All FHA, VA and most conventionally financed loans use a Uniform Settlement Statement called the HUD-1. It is important to keep a copy of this statement in definitely.

Cloud on the Title: A cloud on title can be something as simple as the owner’s middle initial being incorrect on the recorded deed to a large tax lien against the property. 99.9% of lender’s will require any cloud on title to be cleared prior to any closing of a loan on the property.

Co-Borrower or Co-Mortgagor: A second borrower who signs a mortgage loan application with a Borrower. The co-borrower’s income, assets and debts are combined with the borrower’s for underwriting and ratio analysis purposes. The co-borrower’s name will appear on all loan documents as well as closing documents.

Co-Maker: One who signs on an account with another person. See co-signor

Co-signed account: A loan or credit account cosigned by an individual who pledges to pay if the primary borrower does not pay.

Co-signer: An individual who equally pledges his or her collateral or credit by signing on a loan or credit application with another person. Also called a Co-Maker.

Collateral: The value of personal property owned or possessed by the borrower. Relative to home mortgages, collateral is the value of the home the borrower wishes to purchase. If the debtor fails to pay the loan, the creditor may force the debtors to sell the collateral to satisfy the debt or may foreclose and repossess the property to satisfy the debt.

Collection Account: A loan or debt that has been referred by a creditor to an agency whose primary business is to collect outstanding debt obligations. These types of accounts normally appear on the debtor’s credit report.

Coinsurance: Sharing of risk in an insurance policy by more than one insurer.

Collection: Regarding consumer debts: A collection is typically a debt owed to a credit card company, bank, car loan company, city, or other creditor who has been unable to collect the balance owed. Rather than continue to carry this balance on their books the debt is “written off”. That is not to say that the debt is forgiven, only that the unpaid debt has been sent to another department to try to collect it or sold to a Collection Agency who will attempt to collect the debt. In real estate: The servicing procedure followed to bring delinquent mortgage payments current and/or to file the required notices to beginning foreclosure when necessary.

Collection Agency: A business that’s sole purpose is to collect bad debts from a consumer who has not paid.

Commercial Loan: A mortgage loan on income-producing property. Examples are store fronts and strip malls, shopping centers, office buildings, and apartment buildings.

Commission: A fee paid to a real estate professional for negotiating the sale of real estate or the negotiation and origination of a real estate loans. All commissions are usually paid at closing and the amount paid is negotiable.

Commitment Fee: Any fee paid by a potential borrower to a potential lender for the lender’s promise to loan money at a specified date in the future. The lender may or may not expect to fund the commitment. In secondary marketing, a fee paid by the loan seller to the investor in return for the investor’s promise to purchase a loan or package of loans at a future date.

Common Areas: Improvements or land provided for the benefit of all tenants and property owners in a specific area, such as parking lots and landscaping in a shopping center or parks and recreational areas in residential subdivision.

Comparables: Also called “Comps” An abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to property under consideration, thereby indicating the approximate fair market value of the subject property.

Compensating Factors: Attributes in a loan package that overcome weaknesses in the loan package. An example of a compensating factor is the borrower’s ability to save money on a regular basis. This might be a compensating factor for a borrower who has paid a lower rent and the new house payment is significantly higher. The ability to save regularly would then be a “compensating factor”. Another example of a compensating factor might be a guy who is a bit shorter than you are, but he is great at a hobby you dearly love! Or maybe he’s an awesome kisser! You get the idea!

Conditional Commitment: A commitment made by a mortgage lender on a specific property for a definite loan amount, subject to terms and conditions that must be met, along with the borrower remaining in of good credit standing.

Condominium: A form of ownership of real property in which the purchaser receives title to a portion of the entire condominium property as well as the air space within their specific unit.

Conduit: An entity which issues mortgage-backed securities backed by mortgages which were originated by other lenders.

Confirmation of Sale: Court approval of the sale of property by an administrator, executor, guardian, conservator, or commissioner in a foreclosure sale.

Conforming Loan: Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These agencies generally purchase traditional fixed-rate level payment first mortgages up to loan amounts mandated by Congressional directive. The current conforming loan amount is $359,650.

Consideration: The required element of all contracts by which a legal right or promise is exchanged for the act or promise of another person.

Constant: The percentage of an original loan paid in equal annual payments that provide principal reduction and interest payments over the life of the loan. For example, a $1 million loan with a 10.8% constant requires a $108,000 annual payment.

Construction Loan: An interim loan for financing the costs of construction of a building or improvements to a property. The lender pays the contractor at periodic intervals during the construction.

Consumer Credit Counseling Organization: A service for consumers who need education and negotiation with creditors when they fall behind on credit obligations. The organization can negotiate with the creditors so that the consumer has just one payment each month on all of their cards. They may even be able to negotiate lower interest or no interest on the debts while they are being paid down. This USED TO BE a negative on a consumer’s credit report. It still can be if the lender is not up to date. See the Credit Fitness® Guide to Better Credit Scores Kit for additional information.

Consumer Statement: A right that you have under the FAIR CREDIT REPORTING ACT to state your side of a problem with a creditor. You are able to tell your story with regard why a commitment to a lender was not kept. Be very careful when doing this!!! See the Credit Fitness® Guide to Better Credit Scores Kit for additional information.

The Kit will have instruction as to how to do this.

Contingency: Dependence upon stated event, which must occur before a contract is binding.

Contract: An agreement between parties to perform or not perform a particular legal act.

Conventional Financing: In real estate, mortgage financing which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmer’s Home Administration.

Conversion Clause: A provision in some ARM’s that allows you to change the ARM to a fixed-rate loan at some point during the term. At the time of the conversion the new fixed rate is generally set at one of the rates then prevailing for fixed-rate mortgages. The conversion feature may be available at extra cost.

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

Convertible Mortgages: A type of adjustable-rate mortgage that may be converted to a fixed-rate mortgage at specified intervals during a predetermined time period. In income property lending, a mortgage in which lender-provided funds convert to equity ownership after a predetermined period of time.

Conveyance: The document, such as a deed, lease, or mortgage, used to affect a transfer.

Cooperative (Co-Op): A corporation that issues stock for the sole purpose of providing ownership in a structure. Each stockholder has his or her own use of a specific unit of the structure and is responsible for a share of the common area maintenance in addition to payment for their share of the financing of the property through the corporation.

Co-owners: Two or more people with an interest in single parcel of property. This is extremely important issue, since the form of co-ownership shown on the title may affect such matters as estates, inheritances, and personal liability in the event of a lawsuit.

Correspondent: A specialized type of mortgage banker whose function is limited to the origination of mortgage loans which are sold to other mortgage bankers or investment bankers.

Co-Signer: One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property; his or her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower.

Cost Approach to Value: In appraisals a valuation approach in which the value of a property is determined by computing the replacement value of improvements, depreciation, and the value of the land.

Credit Bureau/Repository: Also called CRAs The businesses who take in information on consumers regarding accounts held by the consumer and the payment history of those accounts. Merchants and lenders report payment history and activities to the credit bureaus. This information is disseminated and becomes available for various kinds of credit reports. While there are many credit repositories the three largest are Experian, Equifax, and Trans Union.

Credit Card: A fun piece of plastic one uses to borrow money to make purchases. The card itself is used to access an open ended line of credit for a consumer making purchases or reservations for travel. Interest rates and terms for the card vary and are usually determined by a consumers credit scores.

Credit Counselor: A professional, typically working for a Consumer Credit Counseling Service who can negotiate debts with creditors and set up repayment plans. Budgets and education regarding handling money is also part of good credit counseling. Some loan officers and attorneys also act in this capacity.

Credit: The ability of a person to borrow money & obtain goods with payments over time. This is because of the favorable opinion held by lenders & creditor’s as to the person’s financial situation and reliability.

Credit Counseling: A credit counselor provides credit education, confidential budget and debt counseling, debt repayment programs, and financial management education. Credit counseling can help you improve and build back your credit. Many agencies are free.

Credit Fraud: Deliberate use of credit without intent to repay the creditor. Any scheme that includes borrowing money for an illegal purpose or without intent to repay the lender.

Credit grantor: The term used to describe the person, financial institution or entity that provides a loan or credit.

Credit History: The complete report of a consumer’s use of credit and repayment of borrowed funds. This can cover the lifespan of an individual. Credit reports, however, usually cover only the past ten years at the most.

Credit Limit: The amount of money the lender is willing to lend on an open ended line of credit.

Creditor: A person or company that loans money. A company to whom money is owed.

Credit repair companies: Private, for- profit businesses that perform the actual work associated with repairing a consumer’s credit report. It is essential that you do your homework with respect to hiring a service for this purpose. The work can be done yourself. Any service that recommends establishing a new credit identity should be avoided as they are illegal.

Credit Report/File: 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.

Credit Risk: The credit industry term meaning the level of risk or likelihood of future default by an individual borrower. Credit scores are the industry’s assessment of that risk in a credit score.

Credit Score: A 3 digit number ranging from 400 to 950 that is a complex mathematical calculation, based on a statistical model, of the probability of a consumer having a 90 day late within the next six to 12 months. It is used by all types of lenders in decisions regarding extending credit to consumers. Each of the main three credit repositories issue their own credit scores and their model for determining that score varies with each repository.

Credit Union: A Federally regulated, not-for-profit cooperative financial institution that is owned and controlled by the people who use its services. Credit unions serve groups that share something in common, such as where they work or go to church. Membership in a credit union is required.

Creditworthiness: The ability to qualify for credit and repay debts.

Cure: A loan that is removed from a delinquency status with no loss to the insurer or holder of that loan.