What is the Difference Between Loan Amount and Purchase Price?

Q:

What is the difference between a loan amount and purchase price?

A:

Loan amount and purchase price sometimes get confused in a purchase transaction. It can be difficult to distinguish between the two figures if you are not familiar with the lending process.

The loan amount is the amount a person borrows from a lender. For example, a person may wish to borrower $100,000 as a mortgage to acquire a home. The $100,000 that is borrowed is considered the loan amount.

The purchase price is the amount a buyer is willing to pay for a property. Of course, the seller must also agree to sell the property for the amount the buyer is willing to pay.

In summary, the loan amount is the amount being borrowed. The purchase price the amount being paid to acquire a property. So, you might go to a lender and request to borrower $100,000 for a house you are purchasing for $150,000. The loan amount is the $100,000, the purchase price is $150,000, and the difference of $50,000 ($150,000 – $100,000) is the amount you would have to produce via cash, check, etc. since you did not borrower enough to cover the purchase price.