A buyer wants to purchase a home for $325,000 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

$102,619

To calculate the upfront money needed for a home purchase, the buyer must account for the down payment and the points charged by the lender. In this case, a 30% down payment on a $325,000 home, combined with the additional cost of points, totals to $102,619.

A ($97,500) YOUR ANSWER

This option only reflects the 30% down payment, which is $97,500 ($325,000 x 0.30). However, it fails to include the cost of the points charged by the lender, which adds to the total upfront cost.

B ($104,813) YOUR ANSWER

This amount may incorporate both the down payment and points, but it does not accurately calculate the points based on the correct formula. The points represent a percentage of the loan amount after the down payment, and thus, this figure does not correctly reflect the total upfront payment required.

C ($99,694) YOUR ANSWER

This figure is incorrect as it seems to miscalculate the points and/or the down payment. The calculation must take into account both components, and this option does not align with the correct total after accurately calculating the points on the remaining loan amount.

D ($102,619) CORRECT

To arrive at this answer, first, calculate the down payment of $97,500 (30% of $325,000). Then, determine the loan amount, which is $325,000 - $97,500 = $227,500. The points charged by the lender are 2.25% of the loan amount, which equals $5,118.75 ($227,500 x 0.0225). Adding the down payment and the points gives $102,619 ($97,500 + $5,118.75), confirming this as the correct total upfront cost.

Conclusion

The upfront amount needed to purchase the home accounts for both the down payment and the lender's points. In this scenario, the total of $102,619 accurately reflects these costs, ensuring that the buyer is fully aware of the financial commitment required to finalize the home purchase. Proper calculations of both the down payment and points are essential for making informed financial decisions in real estate transactions.

A buyer wants to purchase a home for $325,000 with a 30% down payment. The lender charges 2.25 points. How much money does the buyer need up front to make the purchase?

$102,619

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