Real Estate Math
A buyer puts 20% down on a $260,000 home. The lender charges 2 points as an origination fee. What is the dollar amount of the points?
A$3,120
B$4,160✓ Correct
C$5,200
D$6,240
Explanation
Loan amount = $260,000 × 80% = $208,000. Points = $208,000 × 2% = $4,160.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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