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

d. The lender made a poor estimate.

Work:
- Estimate: 3.75% of $120,000 = 0.0375 × 120,000 = $4,500.
- Actual: 300+600+1,250+550+525+125+2,000 = $5,350.
- Difference: $5,350 − $4,500 = $850, which is $850/120,000 = 0.708% (≈0.71% of the loan), > 0.5%.