A buyer wants to purchase a home for $160,000 with a 15% down payment. The lender charges 2 points. How much money does the buyer need to close the transaction?

Rationale

The buyer needs $22,894 up front to make the purchase.

To calculate the total amount needed upfront, we first determine the down payment and then the cost of the points charged by the lender. The down payment is 15% of $160,000, which amounts to $24,000, and the lender's points (1.76% of the loan amount) add an additional cost of $2,894, resulting in a total upfront cost of $22,894.

A ($3,200) YOUR ANSWER

This amount represents a miscalculation of the down payment or points. The down payment of 15% on a $160,000 home is actually $24,000, and the points are calculated based on the loan amount after the down payment. Therefore, this figure does not accurately reflect the total upfront costs.

B ($23,520) YOUR ANSWER

This figure exceeds both the down payment and points combined. The correct down payment is $24,000, and when including the points, the total upfront cost should not exceed the calculated $22,894. Thus, this option misrepresents the required upfront money.

C ($24,400) YOUR ANSWER

This is the correct answer as it accurately represents the total amount the buyer needs upfront. This includes the 15% down payment of $24,000 and the points calculated based on the remaining loan amount, resulting in an exact total of $22,894.

D ($26,720) CORRECT

This amount incorrectly suggests a higher cost than what is actually required. The correct calculation shows that the total upfront costs, which include both the down payment and points, should sum to $22,894, not the inflated figure presented here.

Conclusion

In summary, the buyer needs $22,894 up front to purchase the home, which includes a down payment of $24,000 and the points charged by the lender. Understanding the calculations for down payments and points is crucial in determining the total upfront costs accurately, ensuring buyers are financially prepared for their home purchases.

A buyer wants to purchase a home for $160,000 with a 15% down payment. The lender charges 2 points. How much money does the buyer need to close the transaction?

The buyer needs $22,894 up front to make the purchase.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test