A buyer wants to purchase a home for $275,000 with a 20% down payment. The lender charges 2.25 points. How much money does the buyer need up front to make the purchase?

Rationale

$59,950

To determine the upfront amount needed for the purchase, we must calculate both the down payment and the points charged by the lender. The down payment on a $275,000 home at 20% is $55,000, and the points amount to $4,950. Adding these two figures gives a total upfront cost of $59,950.

A ($55,000) YOUR ANSWER

This amount only represents the down payment, which is 20% of the home price. While it is a necessary component of the total upfront cost, it does not include the additional charges for points, making it insufficient for the total amount needed to close the purchase.

B ($61,188) CORRECT

This figure incorrectly combines elements of both the down payment and the points but does not accurately reflect the actual calculations. The points charged should be calculated based on 2.25% of the loan amount, resulting in a different total than this option suggests.

C ($56,238) YOUR ANSWER

This option seems to miscalculate the points or the down payment. It does not accurately reflect the sum of the down payment and the points charged, which are essential for determining the total upfront cost.

D ($59,950) YOUR ANSWER

This is the correct calculation, as it combines the down payment of $55,000 with the points of $4,950, resulting in a total upfront payment of $59,950, which is necessary for the purchase.

Conclusion

To successfully purchase a home priced at $275,000 with a 20% down payment, the buyer must pay both the down payment and the points charged by the lender. The correct total upfront cost amounts to $59,950, which includes the necessary components for closing the transaction. Understanding these calculations is crucial for prospective homebuyers to ensure they budget appropriately for their purchases.

A buyer wants to purchase a home for $275,000 with a 20% down payment. The lender charges 2.25 points. How much money does the buyer need up front to make the purchase?

$59,950

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