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 $320,000.

To find the purchase price of the home, we use the down payment percentage. Since the buyer made a 25% down payment, the loan amount represents 75% of the total purchase price. By calculating the total purchase price based on the loan commitment of $240,000, we determine that the purchase price is $320,000.

A ($265,000) YOUR ANSWER

If the purchase price were $265,000, then the down payment would be 25% of that amount, which equals $66,250. This would imply the loan amount is $198,750 (i.e., $265,000 - $66,250). Since this does not match the loan commitment of $240,000, this option is incorrect.

B ($300,000) YOUR ANSWER

For a purchase price of $300,000, the down payment would be 25% or $75,000, leading to a loan amount of $225,000 (i.e., $300,000 - $75,000). This also does not correspond to the loan commitment of $240,000, making this choice incorrect.

C ($320,000) CORRECT

With a purchase price of $320,000, the down payment of 25% amounts to $80,000. This results in a loan amount of $240,000 (i.e., $320,000 - $80,000), which matches the loan commitment provided. Therefore, this option is correct.

D ($345,000) YOUR ANSWER

If the purchase price were $345,000, the down payment would be 25% or $86,250, resulting in a loan amount of $258,750 (i.e., $345,000 - $86,250). This exceeds the loan commitment of $240,000, thus making this option incorrect.

Conclusion

The purchase price of a home can be calculated by understanding the relationship between the down payment and the loan amount. By determining that the loan of $240,000 represents 75% of the total price, we find that the purchase price must be $320,000. This illustrates how down payments and loan commitments are essential in calculating home purchase costs.

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 $320,000.

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