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Texas Real Estate Sales Agent ExamFinancingMedium

A buyer is purchasing a home for $300,000 and is obtaining an 80% loan-to-value (LTV) mortgage. The lender charges a 1% loan origination fee and 2 discount points. What is the total amount the buyer will pay for the origination fee and discount points?

  1. A$9,600
  2. B$6,000
  3. C$7,200
  4. D$9,000
Show answer & explanation

Correct answer: C. $7,200

First, calculate the loan amount: $300,000 * 80% = $240,000. The origination fee is 1% of the loan amount: $240,000 * 0.01 = $2,400. Discount points are 2% of the loan amount: $240,000 * 0.02 = $4,800. Total cost = $2,400 + $4,800 = $7,200.

Why the other options are wrong

  • A. This calculation incorrectly applies the percentages to the purchase price OR miscalculates the loan amount and percentages.
  • B. This calculation incorrectly applies the percentages to only the origination fee or miscalculates the loan amount.
  • D. This calculation might incorrectly apply percentages to the purchase price instead of the loan amount.

Loan Origination Fee & Discount Points

Fees paid at closing. Origination fees cover lender administrative costs; discount points reduce the interest rate.

  • Both are typically calculated as a percentage of the loan amount.
  • 1 point equals 1% of the loan amount.
  • Origination fees are for processing; discount points are for rate reduction.

Memory trick: Loan costs are percentages of the loan, not the home price.

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