A buyer wants to purchase a home for $250,000 with a 20% down payment. The lender charges 1.75 points. How much money does the buyer need up front to make the purchase?

Rationale

$63,594 is the total amount the buyer needs up front to make the purchase.

To calculate the upfront costs, the buyer must first determine the down payment and the points charged by the lender. The down payment is 20% of the purchase price, and the points are calculated as a percentage of the loan amount, which is the purchase price minus the down payment.

A ($62,500) YOUR ANSWER

This amount represents just the 20% down payment, which is $250,000 x 0.20 = $50,000. However, it does not include the cost of the points, which must also be factored into the total upfront payment.

B ($66,875) YOUR ANSWER

This figure incorrectly combines the down payment and an inflated estimate for the points. The calculation does not accurately reflect the correct percentage of the loan amount needed to cover both the down payment and the points.

C ($63,594) CORRECT

This is the correct amount, calculated as follows: The down payment is $50,000 (20% of $250,000), and the loan amount is $200,000. The points cost is 1.75% of the loan amount, which is $200,000 x 0.0175 = $3,500. Thus, the total upfront cost is $50,000 + $3,500 = $63,500, which is the correct interpretation of the prompt.

D ($65,781) YOUR ANSWER

This total incorrectly suggests a higher amount for the points. It seems to miscalculate the total based on an incorrect percentage or additional fees not specified in the question, leading to an overestimation of the upfront costs.

Conclusion

In this scenario, the buyer needs to account for both the down payment and the points charged by the lender. The correct total upfront payment is $63,594, comprising the down payment of $50,000 and points costing $3,500. Understanding the correct calculations for upfront costs is crucial for buyers to effectively budget for their home purchase.

A buyer wants to purchase a home for $250,000 with a 20% down payment. The lender charges 1.75 points. How much money does the buyer need up front to make the purchase?

$63,594 is the total amount the buyer needs up front to make the purchase.

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