Exam math
Loan to value, down payment and points
Three related calculations that appear together in exam questions, and one rule that decides most of them: a point is one percent of the loan, not of the price.
Your figures
LTV uses the lesser of price or appraised value. When an appraisal comes in low, the lower figure governs and the buyer covers the gap.
One point is one percent of the LOAN amount, never of the purchase price. Calculating on the price is a reliable way to get this wrong.
Escrow, title, recording, appraisal and prepaid items.
Cash to close
$165,500
Down payment $150,000, 1.5 points costing $9,000.00, plus $6,500 of other closing costs. Loan to value 80%.
20% of the price
At 80% loan to value, at or below the 80% threshold, a conventional lender would not normally require private mortgage insurance.
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How this is calculated
Loan to value is the loan divided by the lesser of the purchase price or the appraised value. That lesser-of rule matters in practice as well as on the exam: when an appraisal comes in below the contract price, the lender lends against the appraisal and the buyer covers the difference in cash.
The down payment is simply price less loan. Above 80% loan to value a conventional lender normally requires private mortgage insurance, which protects the lender rather than the borrower. Under the Homeowners Protection Act, PMI must be cancelled automatically at 78% LTV based on the original amortization schedule, and a borrower may request cancellation at 80%. FHA mortgage insurance follows different rules and often runs for the life of the loan.
A point is one percent of the loan amount. Discount points buy down the interest rate, and origination points pay the lender for making the loan. Both are computed on the loan, and an exam question that gives you a price and a loan is very often checking which figure you multiply.
The surrounding material, including deeds of trust, foreclosure and the federal disclosure statutes, sits in Financing.