Betty is contracting to purchase a new home. She contacts the loan office at her local bank to inquire about a mortgage loan. Betty explains that she wants to purchase a home at a contract price of $400,000. She also explains that she will have some expenses when she hires a lawyer to help her and when she contracts for a survey. The bank officer also points out that she will have the cost of a credit check and a number of other expenses as part of obtaining and closing on the proposed loan. The loan officer makes a good faith estimate of the total costs associated with the mortgage loan, including the information provided by Betty, to be about $4,500.

1. Betty indicates that she is fine with the cost of the loan and asks the bank officer if she can borrow $404,500. Should the bank officer approve a loan for the full amount?
2. The bank officer informs Betty that she will be charged 2 points on her loan. If Betty borrows $400,000, how much will the points be in dollars? If instead, she borrows $300,000, how much will the points be in dollars?
3. The bank officer tells Betty that he can get her a loan at 6% interest, but when Betty gets a disclosure from identifying the cost of her loan, it indicates that her interest APR on the loan is 6.5%. Betty contacts you to ask what her real interest rate is for this mortgage loan. Explain.
4. As Betty reviews the loan closing documents, she notices that she is being charged a certain amount of money for something identified as PMI. Explain to Betty what she is paying for and why