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

$104,813.

To calculate the total upfront cost for the buyer, we must first determine the down payment and the cost of points charged by the lender. The 30% down payment on a $325,000 home amounts to $97,500, and the lender's 2.25 points, calculated on the loan amount after the down payment, adds additional costs.

A ($97,500) YOUR ANSWER

This option only represents the down payment, which is 30% of the home price. While the down payment is indeed a significant upfront cost, it does not account for the points charged by the lender, which also needs to be included in the total upfront payment.

B ($104,813) CORRECT

This is the correct answer, as it includes both the down payment of $97,500 and the cost of the lender's points. The points are calculated on the loan amount ($325,000 - $97,500 = $227,500), which results in $5,106.25 (2.25% of $227,500). Thus, the total upfront amount is $97,500 + $5,106.25 = $104,813.

C ($99,694) YOUR ANSWER

This figure does not accurately reflect the total upfront costs. It may suggest an incorrect calculation for either the down payment or the points charged by the lender. The inclusion of both the down payment and the correct points assessment is necessary for an accurate total.

D ($102,619) YOUR ANSWER

This choice is also incorrect as it miscalculates either the down payment, points, or both. Similar to option C, it fails to accurately capture the sum of the down payment and the points, leading to an understated total upfront cost.

Conclusion

To purchase the home, the buyer needs to consider both the down payment and the lender’s points. The total upfront cost amounts to $104,813, which is comprised of the down payment of $97,500 and the points charged by the lender. This comprehensive approach ensures the buyer is adequately prepared for the financial requirements of the home purchase.

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?

$104,813.

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