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 determine the new buyer's equity, we first calculate the loan amount based on the resale price of the home. With a loan-to-value ratio of 70% on the resale price of $260,000, the loan amount is $182,000. The equity is then calculated as the resale price minus the loan amount, resulting in $78,000.
A) $78,000
This option is correct. The equity is calculated by subtracting the loan amount from the home's value. With a loan of $182,000 (70% of $260,000), the equity is $260,000 - $182,000 = $78,000.
B) $90,000
This option is incorrect. To reach an equity of $90,000, the loan amount would have to be $170,000, which would imply a loan-to-value ratio of approximately 65.4%. This does not align with the established loan-to-value ratio of 70%.
C) $182,000
This option is incorrect. It represents the loan amount, not the equity. Equity is determined after subtracting the loan from the home's value, so it cannot equate to the full loan amount.
D) $210,000
This option is incorrect. An equity amount of $210,000 would imply that the loan amount is $50,000, indicating a loan-to-value ratio that is significantly lower than 70%. This does not correspond with the provided loan-to-value ratio of 70% based on the resale price.
Conclusion
The correct answer is $78,000, as it accurately reflects the new buyer's equity after accounting for the loan amount derived from the resale price. All other options miscalculate the relationship between equity, loan amount, and the home's value based on the given loan-to-value ratio.