New York Real Estate Salesperson ExaminationReal Estate CalculationsMedium
A buyer is purchasing a home for $300,000. The lender requires a 20% down payment. If the buyer also needs to pay 2 points at closing, what is the total amount the buyer will pay for the down payment and points?
- A$64,800
- B$60,000
- C$6,000
- D$66,000
Show answer & explanationAnswer & explanation
Correct answer: D. $66,000
First, calculate the down payment: $300,000 * 0.20 = $60,000. Next, calculate the loan amount: $300,000 - $60,000 = $240,000. Then, calculate the points: $240,000 * 0.02 = $4,800. Finally, add the down payment and points: $60,000 + $4,800 = $64,800.
Why the other options are wrong
- A. This is the correct total of down payment and points.
- B. This is only the down payment amount.
- C. This is the value of the points if calculated on the purchase price, not the loan amount.
Loan Points Calculation
Loan points are fees paid to the lender at closing to reduce the interest rate or as an origination fee, calculated as a percentage of the loan amount.
- One point equals 1% of the loan amount.
- Paid by the borrower at closing.
- Can be used to 'buy down' the interest rate.
Memory trick: Down payment first, then points on the loan's thirst.