A capital gain is an increase in the value of a capital asset that you own. A capital gain is calculated as the sale price of the asset minus the basis of the asset. Basis is usually the price you paid for the asset, including transaction costs. Capital gains are taxed at different rates depending on how long the asset is held. A long-term capital gain occurs if you hold the stock, bond, or other security for more than one year. A short-term capital gain occurs if you hold the security for one year or less.
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. (Some states have restrictions on cash-out refinances.)
A Certificate of Deposit (CD) is a short- to medium-term, FDIC-insured investment. Customers agree to lend money to the institutions for a certain amount of time. In exchange for doing so, the customer is paid a pre-determined rate of interest for the term of the CD. A penalty fee may be incurred if the money is withdrawn from the CD before it matures.
Closing is the final stage of the loan process that requires an exchange of any funds due the other party and any signatures required for recording the transaction. Closing costs are paid at this time.
Closing costs are the total expenses that the buyer pays at the time a home loan transaction is completed. Closing costs may include some or all of these fees: origination, appraisal, underwriting, processing, tax service, recording, flood certificate, credit report and reporting. Other costs may include points, a prepaid homeowner's insurance fee, title search and insurance, tax adjustments, agent commissions, and private mortgage insurance or PMI. PMI is required if your down payment is less than 20% of the home's price. For home mortgage loans, closing costs generally range between 3% and 6% of the home's purchase price.
An individual who, together with a borrower, applies for and receives a loan.
Collateral is an asset that is used to secure the repayment of a loan. For example, if a borrower defaults on an auto loan, the lender has the right to sell the vehicle in order to collect on the loan. The same principle works on most mortgage loans, which are collateralized by the homes that the loan is financing.
Combined loan-to-value ratio (CLTV)
This ratio is a key factor in determining the amount of a home equity loan you may qualify for. To calculate, divide the combined mortgage balance amount by the fair market value of the home. A recent appraisal is generally required to determine fair market value. For example, if you take out a $50,000 home equity loan, and add it to your existing mortgage loan balance of $150,000, your combined balance is $200,000. Divided by the home's appraised fair market value of $225,00, your CLTV is almost 89%.
A commission represents a share of the value of a transaction to compensate an individual responsible for the transaction. For example, a real estate professional may receive a 6% commission for selling a residence. The commission represents 6% of the sale price. Some employers use a compensation system based, in part or whole, on commissions. Since commissions are usually linked to generating revenue, salespersons often receive some or all of their compensation from commissions.
A court action that states that a property is unfit for habitation. The term may also be used to describe government claims of private property for public use by the right of eminent domain.
A form of real estate where you own title to your living space and share in ownership of the title to the land and any common areas. Your share of the land and common area is proportional to the number of other condo owners and the sizes of their living units. A homeowner's association is often formed to manage the day-to-day operations of a condo, such as providing maintenance, collecting association dues, and paying real estate taxes.
A conforming mortgage loan is eligible for purchase by Freddie Mac and Fannie Mae®, two government-sponsored enterprises. They may repackage it as a security and sell it to investors. A non-conforming loan is for a larger amount and is often called a Jumbo loan.
Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable rate mortgages (ARMs). It is based on the cost of savings, borrowings, and advances of the institutions that comprise the index.
This is required for all prospective reverse mortgage borrowers, and is provided by a HUD-approved counselor. The counseling must be completed and certificate issued prior to processing the reverse mortgage. An automated valuation model (AVM) or preliminary title may be ordered prior to counseling.
An offer for a home sale that follows a buyer's initial offer. The initial counter-offer may come from the seller or buyer. If the seller makes the initial counter-offer, it is to lower the price to meet the buyer's initial offer. For example, if a buyer offers $100,000 for a home that is listed at $110,000, the seller may counter-offer at $105,000. Once the first counter-offer is made, successive offers from either side are considered counter-offers.
Increases in a bank account, such as a deposit or rebate made to the account.
A historical record of whether you pay your bills on time or are delinquent, or late with your payments. Your credit report reflects your payment history.
(see Credit limit)
The maximum amount that can be borrowed on a home equity line of credit or credit card. Generally, credit lines have pre-determined minimum and maximum withdrawal limits.
For individuals, credit rating is based on your financial resources and credit history. Your total debt level compared to your income level, timeliness in paying bills, number of credit cards, and many other factors are taken into consideration. Credit bureaus use credit scoring to quantify to potential creditors how likely you are to pay back a loan.
A credit report is a summary of an individual's credit history. It includes loan payment histories, late payments, existence of liens or other encumbrances, debt forgiveness, bankruptcy filings and number of inquiries by prospective lenders.
A number that indicates an individual's creditworthiness. A credit bureau calculates your credit score and submits it to a lender to assist in making a credit decision. When a credit bureau uses software from Fair, Isaac and Co. (FICO) to calculate credit-worthiness, the results are called a FICO score). Your credit score helps determine a bank or lender's decision to approve a mortgage, issue a credit card, or offer a business or personal loan. Credit scores do not contain information about your age, gender, color, religion or marital status.
A creditor is a lender, or one to whom you are financially indebted. A creditor can be either an institution or individual. Institutional creditors include banks, credit card companies and bond investors.
A term used by lenders to describe an individual's eligibility to borrow money.
Current Interest Rate (CIR)
In the HECM reverse mortgage program, this is the rate generally being charged on the outstanding loan balance. The CIR for HECMs equals the one-year rate for U.S. Treasury Securities, plus a margin.
Several types of custodial banking and investment accounts are available. The most common are: a) an account managed by an adult for a minor, or b) A retirement account managed for eligible employees by a custodian.