Question

A lender estimates the closing costs on a home loan will be 3.75% of the loan amount of $120,000. the actual closing costs are listed below. closing cost charge loan origination $300 title insurance $600 attorney’s fees $1,250 appraisal $550 inspection $525 recording fees $125 escrow $2,000 evaluate the lender’s good faith estimate. a. the lender made an excellent estimate; it was equal to the actual closing costs. b. the lender made a very good estimate; it was within 0.25% of the actual closing costs. c. the lender made a fairly good estimate; it was between 0.25% and 0.5% of the actual closing costs. d. the lender made a poor estimate; it was off by more than 0.5% of the actual closing costs.

Answer 1

The lender’s good faith estimate is that he made a poor estimate; it was off by more than 0.5% of the actual closing costs.

What is closing cost?

All the expenduture and charges charged by a lander and other parties is called the closing cost.

A lender estimates the closing costs on a home loan will be 3.75% of the loan amount of $120,000.  Thus, the estimate closing cost is,

$C_{ec}=\dfrac{3.75}{100}\times120000\\C_{ec}=4500$

The actual closing costs are listed below.  

• Loan origination   $300
• Title insurance      $600
• Attorney’s fees     $1,250
• Appraisal               $550
• Inspection             $525
• Recording fees     $125
• Escrow                  $2,000.

The total annual cost is,

$C= 300 + 600 + 1,250 + 550 + 525 + 125 + 2,000\\C=4800$

Total annual cost is $300 more than the estimate closing cost. In the percentage form,

$p=\dfrac{4800-4500}{4500}\times100\\p=6.66\%$

Thus, the lender’s good faith estimate is that he made a poor estimate; it was off by more than 0.5% of the actual closing costs.

Learn more about the closing cost here;

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