Rationale
$68,500 is the total amount needed up front for the purchase.
To determine the upfront cost for the home purchase, we first calculate the down payment and then the points charged by the lender. The down payment is 15% of the purchase price, and the points are calculated based on the loan amount, which is the purchase price minus the down payment.
A) $60,000
This amount reflects only the down payment, which is 15% of $400,000. However, it does not include the additional costs associated with the points charged by the lender, which are necessary for the total upfront cost.
B) $70,000
This choice incorrectly assumes a higher down payment or does not account for the correct calculation of points. The down payment alone is $60,000, and this answer does not include the necessary additional funds for points.
C) $61,500
This value mistakenly combines the down payment with an incorrect calculation of points. While it partially accounts for the down payment, it does not reflect the total necessary funds, as the points alone would require a higher total upfront amount.
D) $68,500
This is the correct calculation. The buyer's down payment is $60,000 (15% of $400,000), and the points charged (2.5% of the loan amount of $340,000) add an additional $8,500, resulting in a total upfront cost of $68,500.
Conclusion
To purchase the home, the buyer needs to account for both the down payment and the lender's points. The accurate total costs amount to $68,500, consisting of a $60,000 down payment and $8,500 for points. Understanding these calculations is essential for buyers to budget effectively for their home purchases.
