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
B) 60,480
Step 1 — Calculate the down payment: $280,000 × 20% = $56,000. Step 2 — Calculate the loan amount: $280,000 − $56,000 = $224,000. Step 3 — Calculate the discount points: $224,000 × 2% = $4,480. Step 4 — Add down payment and discount points: $56,000 + $4,480 = $60,480. Wait — let me recheck. $56,000 + $4,480 = $60,480. The correct answer is $60,480, which is option B. Re-examining: Down payment = $280,000 × 0.20 = $56,000. Loan amount = $280,000 − $56,000 = $224,000. Points = $224,000 × 0.02 = $4,480. Total = $56,000 + $4,480 = $60,480.
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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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