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 determine the upfront cost for the buyer, we need to calculate both the down payment and the points charged by the lender. The down payment is 30% of the home's price, and the points, which are a percentage of the loan amount, must also be added to the total upfront cost.

A ($97,500) YOUR ANSWER

This amount represents only the down payment, calculated as 30% of $325,000. However, it does not account for the points charged by the lender, which are an essential part of the upfront costs for the buyer.

B ($104,813) YOUR ANSWER

This figure incorrectly combines a portion of the down payment and points. It fails to accurately calculate the correct amounts for both components, resulting in a total that is less than the actual amount needed for the purchase.

C ($99,694) YOUR ANSWER

This option also miscalculates the total upfront cost. It does not appropriately include the full down payment and the points, leading to an underestimation of the necessary funds to complete the home purchase.

D ($102,619) CORRECT

This total correctly reflects the sum of the down payment of $97,500 (30% of $325,000) and the points, which amount to $5,119 (2.25% of the loan amount of $227,500). Therefore, this option provides the correct upfront cost for the buyer.

Conclusion

The upfront cost for purchasing a home includes both the down payment and any points charged by the lender. For a home priced at $325,000 with a 30% down payment and 2.25 points, the total required upfront is $102,619. Understanding these components is crucial for buyers to prepare their finances accurately for home purchases.

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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