A borrower in Decatur, Alabama purchases a home for $280,000 with a conventional loan. The lender requires a 20% down payment. The borrower will pay discount points equal to 2% of the loan amount at closing to reduce the interest rate. What is the total amount the borrower must pay at closing for the down payment and discount points combined?
Correct Answer
D) 60,480
Down payment: $280,000 x 20% = $56,000. Loan amount: $280,000 - $56,000 = $224,000. Discount points are a percentage of the loan, not of the price: $224,000 x 2% = $4,480. The borrower brings both to closing, so $56,000 + $4,480 = $60,480. Why the others are wrong: $56,000 is the down payment with the points left out. $61,600 takes the 2% from the purchase price ($5,600) instead of the loan. $56,448 applies the 2% to the down payment.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
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Previous Question
James and Patricia are married and purchasing a home in Auburn, Alabama. They are concerned about protecting their ownership interest in the property if one of them passes away. Their real estate agent explains that Alabama is a common-law property state. Which of the following best describes how this affects their property ownership?
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A real estate agent in Birmingham is working with a buyer who asks about the difference between Alabama's foreclosure process and the process used in neighboring Georgia. Both states permit non-judicial (power-of-sale) foreclosure. Which Alabama-specific detail most clearly distinguishes Alabama's process from Georgia's?