A buyer wants to purchase a home for $200,000 with a 20% down payment. The lender charges 2 points. How much money does the buyer need up front to make the purchase?

Rationale

$44,000.

To purchase the home, the buyer needs to provide a 20% down payment along with the points charged by the lender. The total upfront cost combines both of these elements, resulting in the amount of $44,000.

A ($40,000) YOUR ANSWER

This option represents only the down payment of 20% on the home price. The calculation for the down payment is $200,000 x 20% = $40,000. However, this figure does not include the additional cost of the points charged by the lender.

B ($44,000) CORRECT

This is the correct answer, as it encompasses both the down payment and the cost of the points. The down payment is $40,000, and the points (2% of the loan amount, which is $160,000 after the down payment) total $3,200. Therefore, $40,000 + $3,200 = $44,000.

C ($40,800) YOUR ANSWER

This amount incorrectly suggests a combination of the down payment and points. While $40,800 might seem plausible, it does not accurately reflect the calculations. The points are incorrectly calculated in this option, leading to an underestimation of the total upfront cost.

D ($43,200) YOUR ANSWER

This choice similarly miscalculates the total upfront cost required. While it appears to consider both the down payment and points, the calculations do not align with the actual costs. The points alone would account for more than just $1,200 added to the down payment, resulting in an inaccurate total.

Conclusion

To successfully purchase the home, the buyer must account for both the down payment and points charged by the lender. In this case, the total upfront cost of $44,000 includes $40,000 for the down payment and $3,200 for the points. Understanding these calculations is essential for prospective buyers to accurately assess their financial requirements when buying a home.

A buyer wants to purchase a home for $200,000 with a 20% down payment. The lender charges 2 points. How much money does the buyer need up front to make the purchase?

$44,000.

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