The Ultimate Homeowner Dictionary (Definitions C-E)

What are Capital Gains?
Capital gains refer to the profit you make from selling an asset for more than you paid for it. This profit is considered income and is typically subject to taxation. Capital gains can result from the sale of various assets, including real estate, stocks, bonds, and other investments. The amount of tax you owe on capital gains depends on how long you've held the asset before selling it and your overall income.

What’s a Cash-Out Refinance?
A cash-out refinance is a mortgage refinancing option that allows homeowners to replace their existing mortgage with a new one that has a higher loan amount. The difference between the old mortgage and the new one is paid out to the homeowner in cash, which can be used for various purposes, such as home improvements, debt consolidation, or other financial needs. This process effectively converts some of the homeowner’s equity into cash while still maintaining a mortgage on the property.

What Does Caveat Emptor Mean?
Caveat Emptor is a Latin phrase that translates to "let the buyer beware." It is a principle in contract law that places the responsibility on buyers to perform due diligence before making a purchase. The doctrine suggests that the buyer assumes the risk of the quality and condition of the item or property purchased unless there is a specific warranty or guarantee provided by the seller. This concept is especially relevant in real estate transactions, where the buyer is expected to thoroughly inspect the property before finalizing the purchase.

What’s a Certificate of Occupancy?
A Certificate of Occupancy (CO) is an official document issued by a local government or building department that certifies a building’s compliance with applicable building codes and other laws, indicating that the property is safe for occupancy. This certificate is typically required when constructing a new building, making significant renovations to an existing building, or changing the use of a building (for example, converting a commercial space into residential units). Without a CO, the building cannot legally be occupied or used for its intended purpose.

What is Chattel?
Chattel refers to personal property that is movable and not attached to real estate. Unlike real property, which includes land and buildings, chattel can be easily transported from one location to another. Common examples of chattel include furniture, vehicles, livestock, and equipment. In legal terms, chattel encompasses any tangible personal property that can be owned and transferred from one person to another.

What is Debt-to-Income Ratio (DTI)?
The Debt-to-Income Ratio (DTI) is a financial metric used by lenders to determine a borrower’s ability to manage monthly debt payments in relation to their gross monthly income. It is expressed as a percentage and calculated by dividing a person’s total monthly debt obligations by their gross monthly income. Lenders use DTI as a key factor when assessing whether a borrower can afford to take on new debt, such as a mortgage or loan. Generally, a lower DTI ratio indicates a stronger ability to manage debt and makes it easier to qualify for loans.

What is the Debt Avalanche Method?
The Debt Avalanche Method is a debt repayment strategy where you prioritize paying off debts with the highest interest rates first while making minimum payments on the rest. Once the highest-interest debt is fully paid off, you move on to the next highest-interest debt, and so on, until all your debts are cleared. This method focuses on minimizing the total interest paid over time, helping you save money and pay off debt faster.

What is the Debt Snowball Method?
The Debt Snowball Method is a debt repayment strategy where you focus on paying off your smallest debts first, while making minimum payments on all other debts. As each smaller debt is paid off, the amount you were paying on that debt is then applied to the next smallest debt, creating a "snowball" effect. This approach helps build momentum and motivation by quickly eliminating smaller debts, giving you psychological wins that encourage continued progress toward debt freedom.

What is the Debt-to-Income Ratio (DTI)?

The Debt-to-Income Ratio (DTI) is a financial measurement used by lenders to evaluate a borrower’s ability to manage their debt payments relative to their income. It’s expressed as a percentage and calculated by dividing total monthly debt obligations by gross monthly income. A lower DTI suggests that the borrower is better positioned to manage monthly debt payments, while a higher DTI indicates that a borrower may be overextended financially. Lenders use DTI to assess the risk of offering a loan, particularly when applying for a mortgage, car loan, or personal loan.

What is a Deed?
A deed is a legal document that transfers ownership of real estate from one party to another. It outlines the property being transferred and the parties involved, including the seller (grantor) and the buyer (grantee). A deed must be signed by the grantor and, in most cases, notarized to be legally binding. Once the deed is executed and delivered, the ownership of the property is officially transferred. Deeds are essential in real estate transactions and provide a permanent, legal record of property ownership.

What is Earnest Money?
Earnest money is a deposit made by a buyer to demonstrate their serious intent to purchase a property. This money, typically a small percentage of the property's purchase price, shows the seller that the buyer is committed to the transaction and helps to secure the contract. Earnest money is generally held in an escrow account until the transaction is completed or falls through, at which point it may be refunded to the buyer or forfeited to the seller, depending on the terms of the purchase agreement.

What is an Easement?
An easement is a legal right that allows a person or entity to use another person’s land for a specific purpose, even though they do not own the land. Easements are typically used to grant access or usage rights for utilities, roads, driveways, or pathways across someone else's property. The property that benefits from the easement is known as the "dominant estate," while the property that grants the easement is known as the "servient estate."

What is an Emergency Fund?
An emergency fund is a dedicated savings account set aside for unexpected financial situations, such as medical emergencies, car repairs, job loss, or home maintenance issues. The purpose of an emergency fund is to provide a financial safety net, allowing you to cover urgent expenses without resorting to high-interest debt, such as credit cards or personal loans. Financial experts typically recommend having at least three to six months’ worth of living expenses in an emergency fund, although this can vary depending on your income, job stability, and personal circumstances.

What is an Encumbrance?
An encumbrance is a claim, restriction, or legal liability placed on a property by a third party that can affect the owner’s ability to transfer ownership or use the property as they wish. Encumbrances can take many forms, including liens, easements, and deed restrictions. While they do not transfer ownership, they can limit how the property is used or impact its value, and must often be addressed before a property can be sold or mortgaged.

What is an Equity Loan?
An equity loan, also known as a home equity loan or second mortgage, allows homeowners to borrow money by using the equity they have built up in their property as collateral. Home equity is the difference between the current market value of the property and the outstanding balance on the mortgage. Borrowers receive a lump sum that is repaid in fixed monthly payments, typically with a fixed interest rate. Equity loans are commonly used for large expenses, such as home improvements, medical bills, or debt consolidation.