New York Real Estate Salesperson ExaminationReal Estate CalculationsMedium
A property is valued at $500,000. A lender is willing to offer a loan with an 80% loan-to-value (LTV) ratio. If the borrower also pays 2 discount points, how much cash will the borrower need for the down payment and the points?
- A$108,000
- B$106,000
- C$100,000
- D$8,000
Show answer & explanationAnswer & explanation
Correct answer: A. $108,000
First, calculate the loan amount: $500,000 * 0.80 = $400,000. Next, calculate the down payment: $500,000 - $400,000 = $100,000. Then, calculate the cost of the discount points: $400,000 * 0.02 = $8,000. Finally, add the down payment and the points: $100,000 + $8,000 = $108,000.
Why the other options are wrong
- B. This is a common miscalculation, perhaps using 1.5% for points or an incorrect loan amount.
- C. This is only the down payment, not including the points.
- D. This is only the cost of the discount points.
Loan-to-Value (LTV) Ratio
A financial ratio that compares the amount of a mortgage loan to the value of the property, used by lenders to assess risk.
- Calculated as (Loan Amount / Property Value) * 100%.
- Higher LTV ratios generally mean higher risk for lenders.
- Often determines if private mortgage insurance (PMI) is required.
Memory trick: Value times LTV is loan, then find down payment, add points on loan's own.