How much cash will a borrower need to bring to closing if purchasing a $300,000 home with an LTV of 80% and paying 3 discount points?

How much cash will a borrower need to bring to closing if purchasing a $300,000 home with an LTV of 80% and paying 3 discount points?

• A. $67,000
• B. $67,200
• C. $60,000
• D. $75,000

Answer: (B)

To determine how much cash a borrower needs to bring to closing when purchasing a $300,000 home with an 80% loan-to-value (LTV) ratio and paying 3 discount points, we first calculate the loan amount. The LTV of 80% means that the borrower can finance 80% of the home's purchase price. Thus, the loan amount would be: \[ Loan Amount = Home Price \times LTV = 300,000 \times 0.80 = 240,000 \] Next, we calculate the costs associated with the discount points. Discount points are fees paid directly to the lender at closing in exchange for a reduced interest rate. Each point is equal to 1% of the loan amount. Therefore, with 3 discount points, the cost is: \[ Cost of Points = Loan Amount \times (Points/100) = 240,000 \times 0.03 = 7,200 \] In addition to the cost of the discount points, the borrower will also need to cover the down payment, which is the remaining 20% of the home’s purchase price since the LTV is 80%. The down payment can be calculated as follows: \[

To determine how much cash a borrower needs to bring to closing when purchasing a $300,000 home with an 80% loan-to-value (LTV) ratio and paying 3 discount points, we first calculate the loan amount.

The LTV of 80% means that the borrower can finance 80% of the home's purchase price. Thus, the loan amount would be:

[

Loan Amount = Home Price \times LTV = 300,000 \times 0.80 = 240,000

]

Next, we calculate the costs associated with the discount points. Discount points are fees paid directly to the lender at closing in exchange for a reduced interest rate. Each point is equal to 1% of the loan amount. Therefore, with 3 discount points, the cost is:

[

Cost of Points = Loan Amount \times (Points/100) = 240,000 \times 0.03 = 7,200

]

In addition to the cost of the discount points, the borrower will also need to cover the down payment, which is the remaining 20% of the home’s purchase price since the LTV is 80%. The down payment can be calculated as follows:

[