A buyer wants to purchase a home for $250,000 with a 30% down payment. The lender charges 2.25 points. How much money does the buyer need up front to make the purchase?

Rationale

$78,938 is the total amount needed up front for the home 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 30% of the home price, and the points are calculated based on the loan amount, which is the home price minus the down payment.

A (75,000) YOUR ANSWER

This option only accounts for the down payment, which is 30% of $250,000, equating to $75,000. However, it neglects the additional costs associated with the points charged by the lender, making this figure incomplete for the total upfront payment.

B (80,625) YOUR ANSWER

This figure appears to be an incorrect calculation of the down payment plus some points. Specifically, it does not accurately reflect the calculations needed for the points, which would add to the total upfront cost. Thus, while it is a plausible number, it does not represent the correct total.

C (76,688) YOUR ANSWER

This amount is less than the required down payment plus points. It seems to represent an incorrect calculation of either the down payment or the points, as it fails to include the full cost associated with the points charged by the lender based on the loan amount.

D (78,938) CORRECT

This amount includes both the down payment of $75,000 and the points calculated from the loan amount of $175,000 (which is $250,000 minus the down payment). The points are 2.25% of $175,000, adding $3,938, leading to a total of $78,938 needed upfront.

Conclusion

In summary, purchasing the home requires an upfront payment that encompasses both the down payment and any points charged by the lender. The calculation reveals that a buyer needs $78,938 to cover both the down payment and the lender's fees, making option D the correct choice. Proper understanding of these calculations is essential for any homebuyer to accurately assess their financial requirements.

A buyer wants to purchase a home for $250,000 with a 30% down payment. The lender charges 2.25 points. How much money does the buyer need up front to make the purchase?

$78,938 is the total amount needed up front for the home purchase.

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