A buyer wants to purchase a home for $300,000 with a 20% down payment. The lender charges 1.5 points. How much money does the buyer need up front to make the purchase

Rationale

The buyer needs $67,500 up front to make the purchase.

To find the upfront amount required, we first calculate the down payment and the points charged by the lender. The down payment is 20% of $300,000, which equals $60,000. The lender's points, at 2.5% of the mortgage amount ($240,000 after the down payment), add an additional $7,500. Therefore, the total upfront payment is $60,000 + $7,500 = $67,500.

A ($60,000) YOUR ANSWER

This amount represents only the down payment, which is 20% of the home's purchase price. It does not include the additional costs associated with loan points that the buyer must pay at closing, therefore it is not the total amount needed up front.

B ($64,600) YOUR ANSWER

This is the correct answer, as it includes both the 20% down payment ($60,000) and the lender's points ($7,500). Accumulating both costs provides the total upfront amount required to purchase the home.

C ($60,900) YOUR ANSWER

This figure incorrectly adds a partial amount for points to the down payment. It does not accurately reflect the total costs involved, as it fails to account for the complete 2.5% points charged by the lender.

D ($63,600) CORRECT

This amount miscalculates the total upfront payment by underestimating the points charged by the lender. It does not include the correct amount of $7,500 for points, thus failing to give an accurate total.

Conclusion

In purchasing a home, it's crucial to account for both the down payment and any additional fees, such as points. For this scenario, the buyer must pay $60,000 for the down payment and $7,500 for the points, totaling $67,500 upfront. Understanding these components is essential for accurate financial planning in real estate transactions.

A buyer wants to purchase a home for $300,000 with a 20% down payment. The lender charges 1.5 points. How much money does the buyer need up front to make the purchase

The buyer needs $67,500 up front to make the purchase.

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