68. A home purchased 2 years ago for $300,000 was resold for $260,000. The new buyer finances the purchase with a loan. If the loan-to-value ratio is 70%, what is the amount of the new buyer's equity in the home
Answer: A
The amount of the new buyer's equity in the home is $78,000.
To calculate the new buyer's equity in the home, we first determine the loan amount based on the loan-to-value ratio and the purchase price. With a purchase price of $260,000 and a loan-to-value ratio of 70%, the loan amount is $182,000. The equity is then calculated by subtracting the loan amount from the purchase price, resulting in $78,000 in equity.
A) $78,000
This option is correct because it accurately represents the new buyer's equity in the home. The calculation shows that after taking a loan of $182,000 (70% of $260,000), the equity, which is the difference between the home value and the loan amount, is indeed $78,000.
B) $90,000
This option is incorrect as it does not reflect the proper calculation of equity. With a loan amount of $182,000 and a home value of $260,000, the equity cannot be $90,000 since $260,000 - $182,000 equals $78,000.
C) $182,000
This option is also incorrect. This figure represents the loan amount the new buyer would take on, not the equity. Equity is the value of the home minus the outstanding loan, which we have established to be $78,000.
D) $210,000
This option is incorrect as it overstates the equity in the home. Given the purchase price of $260,000 and the loan amount of $182,000, there is no scenario in which equity could reach $210,000, as it exceeds the total value of the home.
Conclusion
The correct answer of $78,000 reflects the accurate calculation of the new buyer's equity based on the given loan-to-value ratio. All other options fail to represent the equity correctly, either by miscalculating the loan amount or misunderstanding the relationship between home value and outstanding loan. Thus, option A is definitively the right choice.