A buyer makes a 25% down payment on their home. They obtain a loan commitment for $240,000. The purchase price is

Rationale

The purchase price is $300,000.

To find the purchase price, we can use the formula where the down payment equals 25% of the purchase price. Given that the loan amount is $240,000, this means that $240,000 represents 75% of the purchase price, allowing us to calculate the total cost of the home.

A (265,000) YOUR ANSWER

If the purchase price were $265,000, the down payment would be 25% of that amount, which is $66,250. The remaining loan amount would then need to be $198,750 (the purchase price minus the down payment), which is less than the $240,000 commitment, making this option incorrect.

B (300,000) CORRECT

This is the correct choice. A 25% down payment on a purchase price of $300,000 equals $75,000. Subtracting this from the total cost leaves a loan amount of $225,000, which is more than the $240,000 commitment, confirming that this option accurately represents the scenario given.

C (320,000) YOUR ANSWER

For a purchase price of $320,000, the down payment would be $80,000. The remaining loan amount would be $240,000, which matches the loan commitment. However, this does not align with the requirement since it represents 25% of the total price. Since the loan must be less than 75% of the purchase price, this option is incorrect.

D (345,000) YOUR ANSWER

If the purchase price were $345,000, the down payment would be $86,250. The remaining loan amount would then be $258,750, which exceeds the loan commitment of $240,000. Therefore, this option is also incorrect.

Conclusion

To determine the purchase price of the home, we calculated the amount covered by the loan in relation to the down payment percentage. The only option that satisfies the condition of a 25% down payment and does not exceed the loan commitment is $300,000. Thus, this option correctly reflects the financial scenario presented in the question.

A buyer makes a 25% down payment on their home. They obtain a loan commitment for $240,000. The purchase price is

The purchase price is $300,000.

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