A buyer wants to purchase a home for $300,000 with a 30% down payment. The lender charges 2 points. How much money does the buyer need up front to make the purchase?

Rationale

The buyer needs $96,000 up front to make the purchase.

To determine the total amount needed up front, the buyer calculates the down payment and the cost of the points charged by the lender. A 30% down payment on a $300,000 home is $90,000, and 2 points (which are 2% of the loan amount) need to be added, resulting in a total of $96,000.

A (90,000) YOUR ANSWER

This amount represents only the down payment, which is 30% of the home price ($300,000). However, it does not include the additional costs associated with the lender's points, which must also be factored into the total upfront payment.

B (96,000) CORRECT

This choice correctly accounts for both the down payment and the cost of the points. The down payment is $90,000, and the points, calculated as 2% of the $210,000 loan amount (which is the home price minus the down payment), add an additional $6,000, leading to a total upfront cost of $96,000.

C (100,000) YOUR ANSWER

This figure inaccurately suggests an inflated total due to a miscalculation. It does not properly account for the down payment and the points, leading to an overestimation of the upfront cash required for the purchase.

D (94,200) YOUR ANSWER

This choice appears to be a miscalculation as well. It incorrectly estimates the costs associated with the points or the down payment, resulting in a total that does not represent the accurate sum of the buyer's upfront expenses.

Conclusion

To successfully purchase a home priced at $300,000 with a 30% down payment and 2 points charged by the lender, the buyer needs a total upfront payment of $96,000. This total combines the necessary down payment of $90,000 and the costs incurred for the points, ensuring that all financial obligations are met at the time of purchase.

A buyer wants to purchase a home for $300,000 with a 30% down payment. The lender charges 2 points. How much money does the buyer need up front to make the purchase?

The buyer needs $96,000 up front to make the purchase.

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