A homebuyer in Hoover, Alabama is purchasing a property for $350,000. The lender requires a 10% down payment. The buyer will also pay an origination fee of 1% of the loan amount. What is the total amount the buyer must pay at closing for the down payment and the origination fee combined?
Correct Answer
B) 38,150
Step 1 — Calculate the down payment: $350,000 × 10% = $35,000. Step 2 — Calculate the loan amount: $350,000 − $35,000 = $315,000. Step 3 — Calculate the origination fee (1% of loan amount): $315,000 × 1% = $3,150. Step 4 — Add down payment and origination fee: $35,000 + $3,150 = $38,150. The correct answer is $38,150, which is option B. Re-examining options: The correct total is $38,150 (option B). However, option C ($38,500) results from calculating the origination fee on the full purchase price ($350,000 × 1% = $3,500, then $35,000 + $3,500 = $38,500). Since origination fees are calculated on the loan amount, not the purchase price, option B ($38,150) is correct.
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Related Topics & Key Terms
Key Terms:
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Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
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