Which of the following terms describes the amount a borrower must pay to close a loan?

Which of the following terms describes the amount a borrower must pay to close a loan?

• A. Down payment
• B. Closing costs
• C. Loan-to-value ratio
• D. Prepayment penalty

Answer: (B)

The correct term to describe the amount a borrower must pay to close a loan is closing costs. Closing costs encompass a variety of fees that are incurred during the closing of a real estate transaction. These can include appraisal fees, title insurance, credit report fees, and various other disbursements necessary to finalize the loan. These costs are typically outlined in the Loan Estimate and Closing Disclosure documents, which detail all financial obligations associated with obtaining the loan. In contrast, a down payment refers to the portion of the purchase price that the borrower must pay upfront and is typically expressed as a percentage of the total loan amount. The loan-to-value ratio is a financial term used to assess the risk of lending in real estate, comparing the amount of the loan to the appraised value of the property. Lastly, a prepayment penalty is a fee that a borrower might incur for paying off their loan earlier than agreed, which does not pertain to the costs associated with closing the mortgage. Understanding these distinctions helps clarify the financial aspects of acquiring a mortgage.

The correct term to describe the amount a borrower must pay to close a loan is closing costs. Closing costs encompass a variety of fees that are incurred during the closing of a real estate transaction. These can include appraisal fees, title insurance, credit report fees, and various other disbursements necessary to finalize the loan. These costs are typically outlined in the Loan Estimate and Closing Disclosure documents, which detail all financial obligations associated with obtaining the loan.

In contrast, a down payment refers to the portion of the purchase price that the borrower must pay upfront and is typically expressed as a percentage of the total loan amount. The loan-to-value ratio is a financial term used to assess the risk of lending in real estate, comparing the amount of the loan to the appraised value of the property. Lastly, a prepayment penalty is a fee that a borrower might incur for paying off their loan earlier than agreed, which does not pertain to the costs associated with closing the mortgage. Understanding these distinctions helps clarify the financial aspects of acquiring a mortgage.