To determine if the lender's good faith estimates are reasonable, follow these steps:
1. Add Up the Closing Costs:
Determine the total closing costs by adding the charges associated with each item:
- Loan origination: [tex]$200
- Title insurance: $[/tex]530
- Attorney's fees: [tex]$600
- Appraisal: $[/tex]265
- Inspection: [tex]$575
- Recording fees: $[/tex]130
- Escrow: [tex]$800
The total closing cost is:
\[
200 + 530 + 600 + 265 + 575 + 130 + 800 = 3100
\]
2. Calculate the Percentage of Closing Costs Relative to the Home Loan Amount:
The home loan amount is $[/tex]50,000. To determine the percentage of the closing cost relative to the home loan amount, use the formula:
[tex]\[
\text{Closing Cost Percentage} = \left( \frac{\text{Total Closing Costs}}{\text{Home Loan Amount}} \right) \times 100
\][/tex]
Substitute the values into the formula:
[tex]\[
\text{Closing Cost Percentage} = \left( \frac{3100}{50000} \right) \times 100 = 6.2\%
\][/tex]
3. Determine the Reasonableness of the Closing Costs:
Generally, reasonable closing costs fall between 3% and 5% of the home loan amount. The calculated percentage is 6.2%, which does not fall within the 3-5% range.
4. Conclusion:
Based on the calculation, the closing costs estimated by the lender are 6.2% of the home loan amount, which exceeds the typical range of 3% to 5%.
Thus, the correct response is:
c. No, because the lender estimated 6.2% of the home loan in closing costs which does not fall between 3-5%.
