A buyer wants to purchase a home for $260,000. The lender appraises the home for $225,000 and offers to finance it with an 80% loan-to-value loan, charging loan origination fee of 1.6 points. How much will the buyer's loan origination fee be?

Rationale

The buyer's loan origination fee will be $3,120.

To calculate the loan origination fee, first determine the loan amount based on the appraised value of the home, which is $225,000. An 80% loan-to-value means the loan will be 80% of $225,000, equaling $180,000. The origination fee is calculated as 1.6 points (1.6% of the loan amount), which results in a fee of $3,120.

A ($2,700) YOUR ANSWER

This choice incorrectly calculates the loan origination fee. It suggests a fee based on a lower loan amount or an incorrect percentage. Specifically, $2,700 implies a point calculation of about 1.5%, which does not reflect the given 1.6 points.

B ($3,120) CORRECT

This is the correct calculation. The origination fee is computed as 1.6% of the loan amount of $180,000, yielding a fee of $3,120. This correctly aligns with the loan terms provided in the question.

C ($3,375) YOUR ANSWER

This option suggests the loan origination fee is calculated using a higher rate or a miscalculation of the loan amount. It implies a fee of around 1.875% of the loan amount, which is not aligned with the specified 1.6 points.

D ($3,900) YOUR ANSWER

This choice overestimates the loan origination fee. It implies a fee based on a calculation of approximately 2.17% of the loan amount, which does not correspond to the 1.6 points stipulated in the question.

Conclusion

The loan origination fee is determined by applying the percentage of points to the loan amount, derived from the appraised value of the home. In this case, the fee correctly computes to $3,120 based on the 1.6% of the $180,000 loan amount. Other options miscalculate either the percentage of points or the loan amount, leading to incorrect fee representations.

A buyer wants to purchase a home for $260,000. The lender appraises the home for $225,000 and offers to finance it with an 80% loan-to-value loan, charging loan origination fee of 1.6 points. How much will the buyer's loan origination fee be?

The buyer's loan origination fee will be $3,120.

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