A buyer is planning to purchase a house that costs $120,000. If the buyer obtains an 85% loan and the lender charges a 1.5% loan origination fee and 1.5 discount points, what is the total cost of the origination fee and discount points?

Rationale

$3,060 is the total cost of the origination fee and discount points.

To determine the total cost associated with the loan origination fee and discount points, we first calculate the loan amount and then apply the respective percentages to find the costs.

A ($1,800) YOUR ANSWER

This amount is derived from incorrectly calculating either the origination fee or the discount points. It may represent a partial calculation but does not account for the combined costs of both fees, leading to an underestimation of the total.

B ($2,550) YOUR ANSWER

This figure could represent the cost of either the origination fee or the discount points alone but fails to include both. The total cost should reflect the sum of 1.5% of the loan amount for the origination fee and 1.5% for the discount points, which results in a higher value.

C ($3,060) CORRECT

This is the correct answer, calculated by taking 85% of the $120,000 house price, which equals $102,000. The loan origination fee is 1.5% of $102,000, resulting in $1,530, and the discount points are also 1.5% of $102,000, resulting in another $1,530. Adding these two amounts gives a total of $3,060.

D ($3,600) YOUR ANSWER

This amount may arise from miscalculating the percentages applied to the loan amount. It does not accurately reflect the origination fee and discount points based on the given percentages of the actual loan amount, resulting in an inflated total.

Conclusion

The total cost of the loan origination fee and discount points for a house priced at $120,000 with an 85% loan is $3,060. This total is calculated accurately by applying the respective percentages to the loan amount, highlighting the importance of understanding how these fees contribute to the overall cost of financing a home. The other options presented reflect either partial calculations or misinterpretations of the fee structure.

A buyer is planning to purchase a house that costs $120,000. If the buyer obtains an 85% loan and the lender charges a 1.5% loan origination fee and 1.5 discount points, what is the total cost of the origination fee and discount points?

$3,060 is the total cost of the origination fee and discount points.

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