An owner sells a property, and the buyer is going to make a 20% downpayment. The lender requires the buyer to pay two discount points, which turns out to total $1,000. What was the purchase price?
A. $50,000
B. $62,500
C. $75,000
D. $200,000
Answer: B. $62,500
The purchase price was $62,500. This question is simply two separate percentage problems. First, find the loan amount. Two discount points is 2% of the loan amount, so divide the value of the discount points by 2% to determine that this was a $50,000 loan ($1,000 / .02 = $50,000). The 20% downpayment means that this is an 80% loan. Now you can use the loan amount and the loan-to-value ratio to find the purchase price. To calculate the purchase price, divide the loan amount by 80% ($50,000 / 80 = $62,500).
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