A buyer wants to purchase a home for $150,000 with a 15% down payment. The lender charges 1.75 points. How much money does the buyer need up front to make the purchase?

Rationale

$24,731

To determine the total upfront cost for the buyer, we first calculate the down payment and then add the points charged by the lender. The down payment is 15% of the home price, and the points are a percentage of the loan amount that need to be paid upfront.

A ($22,500) YOUR ANSWER

This amount represents only the 15% down payment on the $150,000 home price, which is calculated as $150,000 x 0.15 = $22,500. However, this option fails to account for the additional cost of the lender's points, which increases the total upfront payment required.

B ($26,125) YOUR ANSWER

This figure does not correctly reflect either the down payment or the points. It appears to be an arbitrary sum that does not result from the calculations needed for this scenario. The actual calculations should lead to a lower total than this option presents.

C ($22,894) YOUR ANSWER

While this option includes a calculation other than the straightforward down payment, it does not accurately sum the total upfront cost. The additional costs from points are not properly factored in, which makes this amount incorrect as a total upfront payment.

D ($24,731) CORRECT

This option accurately reflects the total upfront cost, which includes the down payment of $22,500 plus the cost of points. The loan amount after the down payment is $127,500 (which is $150,000 - $22,500), and 1.75 points on this amount equates to $2,231.25 ($127,500 x 0.0175), leading to a total of $24,731 ($22,500 + $2,231.25).

Conclusion

To successfully purchase the home, the buyer must consider both the down payment and the points charged by the lender. The correct total upfront payment of $24,731 accurately combines these costs, demonstrating the importance of understanding all financial components in a real estate transaction.

A buyer wants to purchase a home for $150,000 with a 15% down payment. The lender charges 1.75 points. How much money does the buyer need up front to make the purchase?

$24,731

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