A home is purchased with an 80% LTV loan. The buyer is making a $15,000 down payment, paying 1 point, and typical year-end loan and other closing costs. What is the sale price of the home?

Rationale

$75,000

To determine the sale price of the home, we can use the loan-to-value (LTV) ratio. An 80% LTV means the loan covers 80% of the sale price, while the down payment accounts for the remaining 20%. Given a $15,000 down payment, we can calculate the total sale price.

A ($75,000) CORRECT

This choice is correct because if 80% of the home's price is financed, then a $15,000 down payment represents 20% of the sale price. To find the sale price, we can set up the equation: $15,000 = 20% of Sale Price. Solving for the Sale Price gives us $15,000 ÷ 0.20 = $75,000.

B ($93,750) YOUR ANSWER

This option suggests an incorrect calculation where the down payment is not accurately represented as 20% of the sale price. If the home were priced at $93,750, the down payment would be $18,750 (20% of $93,750), which contradicts the stated down payment of $15,000.

C ($100,000) YOUR ANSWER

At this price, the down payment would be $20,000 (20% of $100,000). This does not match the given down payment of $15,000, which indicates that the sale price must be lower to accommodate the correct down payment percentage.

D ($118,750) YOUR ANSWER

If the home were priced at $118,750, the down payment would be $23,750 (20% of $118,750). Again, this does not align with the $15,000 down payment specified, further confirming that this option is incorrect.

Conclusion

The sale price of the home is calculated based on the down payment and LTV ratio. With an 80% LTV and a $15,000 down payment, the correct sale price is $75,000, ensuring that the loan covers 80% of this amount. All other options fail to properly align the down payment with the corresponding sale price, leading to their incorrect status.

A home is purchased with an 80% LTV loan. The buyer is making a $15,000 down payment, paying 1 point, and typical year-end loan and other closing costs. What is the sale price of the home?

$75,000

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