QUICK ANSWER

Loan-to-value, down payment, and points questions are usually just percent-of-base questions. LTV equals loan amount divided by property value. Down payment equals purchase price minus loan amount. One point equals 1% of the loan amount. Discount points are paid up front for a lower interest rate, while origination fees are lender charges for making the loan. If the exam gives prepaid interest, calculate daily interest from the loan amount, annual rate, and number of days stated in the question.

1 point
1% of the loan amount
80% LTV
usually means 20% down
1 category
Pearson math category for loan financing costs

Start Here

Loan financing math is one of the highest-value math skills for the Texas real estate exam because it connects several ideas candidates often study separately.

You may know how to calculate a percentage.

But the exam may ask that percentage through mortgage language:

  • Loan-to-value.
  • Down payment.
  • Combined loan-to-value.
  • Discount points.
  • Origination fee.
  • Prepaid interest.
  • Loan amount from purchase price.
  • Purchase price from loan amount.
  • Financing cost from a rate.
  • Cash needed at closing.

The math is not complicated once you know the base.

That is the secret.

Most wrong answers come from multiplying the right percentage by the wrong number.

For LTV, the base is usually value or purchase price.

For points, the base is the loan amount.

For prepaid interest, the base is the loan amount, not the purchase price.

For down payment, the base is usually the purchase price.

This guide walks through each type, shows the formulas, gives worked examples, and then gives you a practice set built for Texas real estate exam prep.

Table Of Contents

What Loan Financing Math Appears On The Texas Real Estate Exam?

Pearson VUE's Texas sales content outline lists "Real Estate Math Calculations" in the National/General portion of the exam. Under that math category, the outline specifically includes "Loan financing costs."

Pearson lists these loan financing cost topics:

Pearson topic What it can mean in practice
Interest Simple interest, prepaid interest, monthly interest basics
Loan to Value (LTV) Loan amount compared with property value
Fees Origination fee, lender fee, financing charge stated in the question
Amortization Payment schedule concepts, principal and interest
Discount points Points paid up front, usually based on loan amount
Prepayment penalties Fee concept if a loan is paid early

Pearson also lists settlement and closing cost math, including purchase price, down payment, monthly mortgage calculations, cost to the buyer, prorated items, debits, and credits.

So this topic can appear as pure math or as a closing-cost question.

For example:

  • A buyer purchases a home for $400,000 and gets an 80% loan. What is the loan amount?
  • A buyer makes a 20% down payment. What is the cash down payment?
  • A borrower pays 2 discount points on a $320,000 loan. How much are the points?
  • A buyer closes with 18 days of prepaid interest. How much is due?
  • A first lien and second lien create a combined loan-to-value ratio. What is the CLTV?

The exam will give the numbers you need. Your job is to identify the correct base and sequence.

This article uses original educational practice examples, not copied exam questions.

Core Formula Sheet

Use this formula sheet as your quick reference.

Need Formula
Loan-to-value Loan amount / value
Loan amount from LTV Value x LTV
Value from loan and LTV Loan amount / LTV
Down payment amount Purchase price - loan amount
Down payment percent Down payment / purchase price
Down payment from percent Purchase price x down payment percent
LTV from down payment percent 100% - down payment percent
Combined loan-to-value Total secured loans / value
One point 1% of loan amount
Points cost Loan amount x points percent
Origination fee Loan amount x fee percent
Annual simple interest Principal x rate
Daily interest using 365 Principal x rate / 365
Daily interest using 360 Principal x rate / 360
Prepaid interest Daily interest x number of days

Convert percentages to decimals before multiplying:

Percent Decimal
1% 0.01
1.5% 0.015
2% 0.02
3% 0.03
5% 0.05
6.5% 0.065
20% 0.20
80% 0.80
95% 0.95

The Base-Number Rule

Before you calculate anything, ask:

What number does this percentage apply to?

That one question solves most loan financing math.

Topic Usually based on
LTV Value, purchase price, or appraised value stated in the problem
Down payment Purchase price
Discount points Loan amount
Origination fee Loan amount
Prepaid interest Loan amount
Monthly interest Loan balance
CLTV Total secured loan balances compared with value

Do not use the sale price automatically.

If a question says points are charged on the loan, use the loan amount.

If a question says the buyer puts 15% down, use the purchase price.

If a question says the LTV is based on appraised value, use the appraised value.

If the question gives both price and appraisal, read carefully. Real-world lenders may use specific underwriting rules, but exam math normally tells you which value to use or gives a simple enough fact pattern that the intended base is clear.

Loan-To-Value Explained

Loan-to-value compares the loan amount to the value of the property.

The CFPB explains LTV as a measure comparing the amount being financed with the appraised value of the property. It also notes that a higher down payment lowers the LTV ratio.

The formula is:

LTV = loan amount / property value

If a buyer borrows $360,000 on a $450,000 property:

$360,000 / $450,000 = 0.80

The LTV is 80%.

LTV shortcut

If a buyer puts 20% down, the loan is usually 80% of the purchase price.

100% - 20% = 80% LTV

If a buyer puts 10% down:

100% - 10% = 90% LTV

If a buyer gets a 95% loan:

100% - 95% = 5% down

LTV table

Purchase price Down payment Loan amount LTV
$300,000 $60,000 $240,000 80%
$300,000 $30,000 $270,000 90%
$400,000 $80,000 $320,000 80%
$500,000 $25,000 $475,000 95%
$625,000 $125,000 $500,000 80%

The pattern is simple:

More down payment means lower LTV.

Less down payment means higher LTV.

The CFPB notes that lenders may use LTV to help decide how much a borrower can borrow, what interest rate may be offered, and whether mortgage insurance or a government-backed loan is involved.

For the exam, keep the concept clean:

Loan divided by value equals LTV.

Down Payment Calculations

Down payment is the part of the purchase price the buyer is not borrowing.

The formula is:

Down payment = purchase price - loan amount

If a buyer purchases a home for $375,000 and borrows $300,000:

$375,000 - $300,000 = $75,000

The down payment is $75,000.

To find the down payment percent:

$75,000 / $375,000 = 0.20

The buyer made a 20% down payment.

Down payment from percent

If the question gives the down payment percent, multiply by the purchase price.

A buyer purchases a property for $420,000 and makes a 15% down payment.

$420,000 x 0.15 = $63,000

The down payment is $63,000.

The loan amount is:

$420,000 - $63,000 = $357,000

The LTV is:

$357,000 / $420,000 = 0.85

The LTV is 85%.

Loan amount from LTV

If the question gives LTV, multiply the value by the LTV.

A buyer purchases a home for $500,000 with a 90% LTV loan.

$500,000 x 0.90 = $450,000

The loan amount is $450,000.

The down payment is:

$500,000 - $450,000 = $50,000

The down payment is $50,000.

Combined Loan-To-Value Explained

Combined loan-to-value, or CLTV, compares all secured loans on the property with the property value.

The formula is:

CLTV = total secured loans / property value

Use CLTV when the question gives more than one loan.

Example:

  • Property value: $500,000
  • First mortgage: $350,000
  • Second mortgage: $50,000

Total secured loans:

$350,000 + $50,000 = $400,000

CLTV:

$400,000 / $500,000 = 0.80

The CLTV is 80%.

The LTV for the first mortgage alone is:

$350,000 / $500,000 = 0.70

The first mortgage LTV is 70%.

That distinction matters.

LTV usually looks at one loan.

CLTV looks at the total of loans secured by the property.

Discount Points

One point equals 1% of the loan amount.

The CFPB explains that points, also called discount points, let borrowers trade higher upfront costs for a lower interest rate. CFPB also states that one point equals 1% of the loan amount.

For exam math:

Points cost = loan amount x points percent

If a buyer pays 2 points on a $300,000 loan:

$300,000 x 0.02 = $6,000

The points cost $6,000.

If a buyer pays 1.5 points on a $280,000 loan:

$280,000 x 0.015 = $4,200

The points cost $4,200.

If a buyer pays 0.5 points on a $460,000 loan:

$460,000 x 0.005 = $2,300

The points cost $2,300.

Discount points vs loan points wording

Some questions say "discount points."

Some say "points."

Some say "loan discount."

For math purposes, when the question gives points as a percent or number of points, use the loan amount as the base.

Do not use purchase price for points

This is the classic trap.

A buyer purchases a home for $400,000, puts 20% down, and pays 2 points.

Do not calculate:

$400,000 x 0.02 = $8,000

That uses the purchase price.

First find the loan:

$400,000 x 0.80 = $320,000

Then calculate points:

$320,000 x 0.02 = $6,400

The points cost $6,400.

Origination Fees

Origination fees are upfront lender charges connected with making the loan.

The CFPB Loan Estimate explainer says origination charges are upfront fees charged by the lender and that common origination charges can include application fees, origination fees, underwriting fees, processing fees, verification fees, and rate-lock fees.

For exam math, an origination fee is often shown as a percent of the loan amount.

Origination fee = loan amount x origination fee percent

If the origination fee is 1% on a $350,000 loan:

$350,000 x 0.01 = $3,500

If the origination fee is 0.75% on a $420,000 loan:

$420,000 x 0.0075 = $3,150

Do not confuse origination fees with discount points.

Item Basic meaning Exam math base
Discount points Paid up front for a lower interest rate Loan amount
Origination fee Lender charge for making or processing the loan Loan amount
Lender credit Credit toward closing costs in exchange for higher rate Amount stated or percent stated
Prepaid interest Interest paid at closing for days before first payment period Loan amount

If the question asks for total financing charges, add the items it tells you to add.

Do not add items the question does not mention.

Prepaid Interest

Prepaid interest is interest paid at closing for a partial period.

The exam may phrase it like this:

  • "The buyer owes 15 days of prepaid interest."
  • "Interest is charged from the day after closing through the end of the month."
  • "Use a 365-day year."
  • "Use a 360-day year."

The formula is:

Daily interest = loan amount x annual interest rate / days in year

Then:

Prepaid interest = daily interest x number of days

If the question says use 365 days, use 365.

If the question says use 360 days, use 360.

If the question gives a daily amount, use the daily amount.

Pearson's handbook says that if a proration question needs 360 or 365 days, the question will specify the basis and whether the closing day belongs to the buyer or seller. Prepaid interest is not always a proration question, but the same exam habit helps: use the day-count rule the problem gives you.

Prepaid interest example

Loan amount: $300,000
Interest rate: 6%
Days: 20
Day-count basis: 365

Annual interest:

$300,000 x 0.06 = $18,000

Daily interest:

$18,000 / 365 = $49.315...

Prepaid interest:

$49.315... x 20 = $986.30

The prepaid interest is $986.30 using standard rounding.

360-day version

Same loan and rate, but use 360 days:

$18,000 / 360 = $50

$50 x 20 = $1,000

The prepaid interest is $1,000.

That is why the day-count instruction matters.

Financing Cost Examples

Loan financing cost questions often stack two or three steps.

Use this order:

  1. Find the purchase price or value.
  2. Find the loan amount.
  3. Calculate the financing cost based on the loan amount.
  4. Add costs only if the question asks for total cost.

Example: LTV plus points

A buyer purchases a property for $450,000 with an 80% loan and pays 1.5 discount points. What is the cost of the points?

Loan amount:

$450,000 x 0.80 = $360,000

Points:

$360,000 x 0.015 = $5,400

The points cost $5,400.

Example: Down payment plus origination fee

A buyer purchases a property for $525,000, puts 20% down, and pays a 1% origination fee. How much is the down payment and origination fee together?

Down payment:

$525,000 x 0.20 = $105,000

Loan amount:

$525,000 - $105,000 = $420,000

Origination fee:

$420,000 x 0.01 = $4,200

Total:

$105,000 + $4,200 = $109,200

The total is $109,200.

Example: LTV, points, and prepaid interest

A buyer purchases a home for $500,000 with a 90% loan. The buyer pays 2 points and 12 days of prepaid interest at 6.5% using a 365-day year. What are the points and prepaid interest together?

Loan amount:

$500,000 x 0.90 = $450,000

Points:

$450,000 x 0.02 = $9,000

Annual interest:

$450,000 x 0.065 = $29,250

Daily interest:

$29,250 / 365 = $80.1369...

Prepaid interest:

$80.1369... x 12 = $961.64

Total:

$9,000 + $961.64 = $9,961.64

The total is $9,961.64.

Practice This Before The Exam

Use the Texas real estate exam prep app to practice LTV, down payment, discount points, origination fees, prepaid interest, and layered financing-cost problems with step-by-step explanations. Native Texas exam prep. Original questions. No copied exam questions. Not affiliated with TREC or Pearson VUE. Not a 180-hour pre-license course or a pass guarantee.

Worked Examples

1. Find LTV

A buyer purchases a property for $360,000 and borrows $288,000. What is the LTV?

$288,000 / $360,000 = 0.80

Answer: 80% LTV.

2. Find Loan Amount From LTV

A buyer purchases a property for $425,000 with an 85% loan. What is the loan amount?

$425,000 x 0.85 = $361,250

Answer: $361,250.

3. Find Down Payment From LTV

A buyer purchases a property for $425,000 with an 85% loan. What is the down payment?

Loan amount:

$425,000 x 0.85 = $361,250

Down payment:

$425,000 - $361,250 = $63,750

Answer: $63,750.

Shortcut:

100% - 85% = 15%

$425,000 x 0.15 = $63,750

4. Find Value From Loan And LTV

A borrower has a $380,000 loan at 80% LTV. What value is being used?

$380,000 / 0.80 = $475,000

Answer: $475,000.

5. Calculate Discount Points

A borrower pays 2.25 points on a $320,000 loan. What is the cost?

$320,000 x 0.0225 = $7,200

Answer: $7,200.

6. Calculate Origination Fee

A lender charges a 0.75% origination fee on a $390,000 loan. What is the fee?

$390,000 x 0.0075 = $2,925

Answer: $2,925.

7. Calculate Prepaid Interest

A buyer has a $360,000 loan at 6% interest and owes 10 days of prepaid interest using a 365-day year. What is due?

Annual interest:

$360,000 x 0.06 = $21,600

Daily interest:

$21,600 / 365 = $59.178...

Prepaid interest:

$59.178... x 10 = $591.78

Answer: $591.78.

8. Calculate CLTV

A property is valued at $600,000. It has a $420,000 first mortgage and a $60,000 second mortgage. What is the CLTV?

Total loans:

$420,000 + $60,000 = $480,000

CLTV:

$480,000 / $600,000 = 0.80

Answer: 80% CLTV.

9. Total Financing Costs

A buyer obtains a $500,000 loan, pays 1 point, and pays a 0.5% origination fee. What is the total of these two costs?

Point:

$500,000 x 0.01 = $5,000

Origination fee:

$500,000 x 0.005 = $2,500

Total:

$5,000 + $2,500 = $7,500

Answer: $7,500.

10. Cash Down Plus Points

A buyer purchases a home for $475,000 with an 80% loan and pays 1.5 points. What is the down payment plus points?

Down payment:

$475,000 x 0.20 = $95,000

Loan amount:

$475,000 x 0.80 = $380,000

Points:

$380,000 x 0.015 = $5,700

Total:

$95,000 + $5,700 = $100,700

Answer: $100,700.

Practice Set

Try these without looking at the answer key first.

1. LTV

A buyer purchases a home for $400,000 and borrows $320,000. What is the LTV?

2. Loan Amount

A buyer purchases a property for $550,000 with a 90% loan. What is the loan amount?

3. Down Payment

A buyer purchases a property for $550,000 with a 90% loan. What is the down payment?

4. Down Payment Percent

A buyer purchases a home for $375,000 and puts down $75,000. What is the down payment percent?

5. Value From Loan And LTV

A borrower has a $440,000 loan at 88% LTV. What value is being used?

6. One Point

What is one point on a $275,000 loan?

7. Discount Points

A buyer pays 1.75 points on a $360,000 loan. What is the cost of the points?

8. Origination Fee

A lender charges a 1% origination fee on a $410,000 loan. What is the fee?

9. LTV Plus Points

A buyer purchases a home for $625,000 with an 80% loan and pays 2 points. What is the cost of the points?

10. CLTV

A property is valued at $500,000. The first mortgage is $350,000 and the second mortgage is $25,000. What is the CLTV?

11. Prepaid Interest 365

A buyer has a $300,000 loan at 6% interest and owes 15 days of prepaid interest using a 365-day year. What is due?

12. Prepaid Interest 360

A buyer has a $300,000 loan at 6% interest and owes 15 days of prepaid interest using a 360-day year. What is due?

13. Total Financing Cost

A buyer obtains a $480,000 loan, pays 1 point, and pays a 0.5% origination fee. What is the total of those two charges?

14. Cash Down Plus Origination Fee

A buyer purchases a property for $700,000, makes a 25% down payment, and pays a 1% origination fee on the loan. What is the down payment plus origination fee?

15. Layered Financing Cost

A buyer purchases a home for $525,000 with an 85% loan. The buyer pays 1.5 discount points and 10 days of prepaid interest at 6.25% using a 365-day year. What are the points and prepaid interest together?

Answer Key And Explanations

1. LTV

$320,000 / $400,000 = 0.80

Answer: 80%.

2. Loan Amount

$550,000 x 0.90 = $495,000

Answer: $495,000.

3. Down Payment

$550,000 - $495,000 = $55,000

Answer: $55,000.

Shortcut:

$550,000 x 0.10 = $55,000

4. Down Payment Percent

$75,000 / $375,000 = 0.20

Answer: 20%.

5. Value From Loan And LTV

$440,000 / 0.88 = $500,000

Answer: $500,000.

6. One Point

$275,000 x 0.01 = $2,750

Answer: $2,750.

7. Discount Points

$360,000 x 0.0175 = $6,300

Answer: $6,300.

8. Origination Fee

$410,000 x 0.01 = $4,100

Answer: $4,100.

9. LTV Plus Points

Loan amount:

$625,000 x 0.80 = $500,000

Points:

$500,000 x 0.02 = $10,000

Answer: $10,000.

10. CLTV

Total loans:

$350,000 + $25,000 = $375,000

CLTV:

$375,000 / $500,000 = 0.75

Answer: 75%.

11. Prepaid Interest 365

Annual interest:

$300,000 x 0.06 = $18,000

Daily interest:

$18,000 / 365 = $49.315...

Prepaid interest:

$49.315... x 15 = $739.73

Answer: $739.73.

12. Prepaid Interest 360

Annual interest:

$300,000 x 0.06 = $18,000

Daily interest:

$18,000 / 360 = $50

Prepaid interest:

$50 x 15 = $750

Answer: $750.

13. Total Financing Cost

Point:

$480,000 x 0.01 = $4,800

Origination fee:

$480,000 x 0.005 = $2,400

Total:

$4,800 + $2,400 = $7,200

Answer: $7,200.

14. Cash Down Plus Origination Fee

Down payment:

$700,000 x 0.25 = $175,000

Loan amount:

$700,000 - $175,000 = $525,000

Origination fee:

$525,000 x 0.01 = $5,250

Total:

$175,000 + $5,250 = $180,250

Answer: $180,250.

15. Layered Financing Cost

Loan amount:

$525,000 x 0.85 = $446,250

Points:

$446,250 x 0.015 = $6,693.75

Annual interest:

$446,250 x 0.0625 = $27,890.625

Daily interest:

$27,890.625 / 365 = $76.4126...

Prepaid interest:

$76.4126... x 10 = $764.13

Total:

$6,693.75 + $764.13 = $7,457.88

Answer: $7,457.88.

Common Mistakes

Mistake 1: Calculating Points On Purchase Price

Points are based on loan amount, not purchase price.

If the buyer purchases a home for $500,000 with an 80% loan and pays 2 points, the points are based on $400,000, not $500,000.

Mistake 2: Confusing Down Payment Percent And LTV

An 80% loan means 20% down.

A 90% loan means 10% down.

A 95% loan means 5% down.

Do not treat the down payment percent and loan percent as the same thing.

Mistake 3: Forgetting To Convert Percentages

Use decimals:

2 points = 0.02
1.5 points = 0.015
0.5 points = 0.005

Mistake 4: Mixing Up LTV And CLTV

LTV usually uses one loan.

CLTV uses all secured loans in the problem.

If a property has a first mortgage and second mortgage, add them before calculating CLTV.

Mistake 5: Using Annual Interest As Monthly Or Daily Interest

Annual interest is not the same as prepaid interest.

For prepaid interest, divide annual interest by the day-count basis, then multiply by the number of days.

Mistake 6: Assuming A Day-Count Rule

If the question tells you 360 or 365, use that number.

If it gives a daily interest figure, use that figure.

Do not import a rule from a different problem.

Mistake 7: Adding Costs The Question Did Not Ask For

If the question asks only for points, do not add down payment.

If it asks for down payment plus points, add both.

If it asks for total buyer cash at closing, include only the items listed in the question.

How To Study This Topic

Use three passes.

Pass 1: Memorize The Base

Write these from memory:

LTV = loan / value
Down payment = price - loan
One point = 1% of loan
Fee = loan x fee percent
Daily interest = loan x annual rate / days

If you know the base, the problem gets much easier.

Pass 2: Drill Single-Step Questions

Practice:

  • Find LTV.
  • Find loan amount.
  • Find down payment.
  • Find one point.
  • Find 2 points.
  • Find 1% origination fee.

Speed matters, but accuracy comes first.

Pass 3: Drill Layered Questions

Then practice problems that combine steps:

  • Purchase price plus LTV plus points.
  • Purchase price plus down payment plus origination fee.
  • Loan amount plus rate plus prepaid interest.
  • First loan plus second loan plus CLTV.
  • Down payment plus closing-cost charge.

The exam loves sequence.

If you build the sequence calmly, the numbers behave.

Where This Fits In The Texas Math Cluster

This article is part of the Texas real estate math cluster.

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Area and acreage Area, acreage, and square-footage problems
Closing prorations Proration: taxes, insurance, and rent at closing

Loan financing costs also connect to buyer closing costs, seller net, PITI, and TRID vocabulary.

FAQ

What is LTV on the Texas real estate exam?

LTV means loan-to-value. It compares the loan amount with the property value used in the problem. The formula is loan amount divided by value. A $320,000 loan on a $400,000 property is 80% LTV.

What is the formula for down payment?

Down payment equals purchase price minus loan amount. If the question gives a down payment percent, multiply purchase price by that percent.

Are points based on purchase price or loan amount?

Points are based on the loan amount. One point equals 1% of the loan amount. If the purchase price is $400,000, the loan is $320,000, and the borrower pays 2 points, the points cost $6,400.

What is the difference between discount points and an origination fee?

Discount points are paid up front in exchange for a lower interest rate. An origination fee is a lender charge connected with making or processing the loan. In exam math, both are often calculated from the loan amount, but they are conceptually different.

What is CLTV?

CLTV means combined loan-to-value. It compares all loans secured by the property with the property value. If a property is worth $500,000 and has a $350,000 first mortgage plus a $25,000 second mortgage, the CLTV is 75%.

How do I calculate prepaid interest?

Multiply the loan amount by the annual interest rate to find annual interest. Divide by the day-count basis stated in the question, usually 360 or 365 if given. Then multiply by the number of prepaid interest days.

Does the Texas exam give the day-count rule?

Pearson's handbook says that if a proration calculation needs 360 or 365 days, the question will specify the basis and whether the closing day belongs to the buyer or seller. For any financing or interest question, use the day-count information given in that question.

Should I memorize one point equals 1%?

Yes. One point equals 1% of the loan amount. That is one of the simplest and most useful financing math facts to know.

Should I practice this in the app?

Yes. Loan financing math is perfect for short practice sets because mistakes usually come from using the wrong base number. The Texas real estate exam prep app gives you original LTV, down payment, points, origination fee, and prepaid interest practice with explanations. Native Texas exam prep. Original questions. No copied exam questions. Not affiliated with TREC or Pearson VUE. Not a 180-hour pre-license course or a pass guarantee.

Are the practice questions copied from the Texas exam?

No. The examples and practice questions in this article are original educational practice questions. The Texas real estate exam prep app also uses original questions. Native Texas exam prep. Original questions. No copied exam questions. Not affiliated with TREC or Pearson VUE. Not a 180-hour pre-license course or a pass guarantee.

Verification Note

This article was verified against the current Pearson VUE Texas real estate content outline, the Pearson VUE candidate handbook, and CFPB consumer education pages on loan-to-value, Loan Estimates, points, lender credits, origination charges, and closing costs.

The article is for educational exam prep. It is not mortgage, legal, tax, or financial advice. Mortgage terms, underwriting rules, fees, and disclosures can vary by lender, loan type, borrower profile, and current regulation. For the Texas real estate exam, use the facts and numbers given in the question.

Sources