A married couple is planning to purchase a house that costs $86,000. If they obtain a 60% loan and the lender charges a 2.5% loan origination fee and…

The total cost is the sum of the loan origination fee and the discount points, both of which are calculated based on the loan amount, not the purchase price.

1. Calculate the Loan Amount: $86,000 (Purchase Price) × 60% (Loan-to-Value) = $51,600.

2. Calculate the Loan Origination Fee: $51,600 (Loan Amount) × 2.5% (0.025) = $1,290.

3. Calculate the Discount Points Cost: $51,600 (Loan Amount) × 0.5% (0.005) = $258.

4. Calculate Total Cost: $1,290 + $258 = $1,548.

A. This amount represents only the loan origination fee and incorrectly omits the cost of the discount points.

C. This figure results from incorrectly calculating the 2.5% origination fee on the full purchase price instead of the loan amount.

D. This figure results from incorrectly calculating the combined 3% (2.5% + 0.5%) fees on the full purchase price.

1. New Jersey Real Estate Commission. (2023). Real Estate Salesperson Curriculum. Topic 10: Mortgages. The state-mandated curriculum requires instruction on "Points (discount points and origination fees)," establishing their calculation as a core competency.

2. Ling, D. C., & Archer, W. R. (2021). Real Estate Principles: A Value Approach (7th ed.). McGraw-Hill Education. Chapter 10, "Sources of Mortgage Money," specifies that lender charges like origination fees and discount points are expressed as a percentage of the loan amount.

3. Brueggeman, W. B., & Fisher, J. D. (2019). Real Estate Finance & Investments (16th ed.). McGraw-Hill Education. Chapter 2, "Mortgage Loan Foundations," defines discount points and origination fees as upfront financing costs calculated on the principal loan amount.