A buyer wants to purchase a home for $400,000 with a 15% down payment. The lender charges 2.5 points. How much money does the buyer need up front to make the purchase?

Rationale

$68,500 is the total amount of money the buyer needs up front to make the purchase.

To calculate the upfront costs for the home purchase, we first determine the down payment and the points charged by the lender. The down payment is calculated as 15% of the purchase price, and the points are calculated on the loan amount.

A ($60,000) YOUR ANSWER

This choice represents a down payment of 15% on the purchase price of $400,000, which equals $60,000. However, it does not account for the points charged by the lender, which are an additional upfront cost that must be included in the total.

B ($70,000) YOUR ANSWER

This option incorrectly adds some additional amount to the down payment but does not accurately incorporate the calculations for both the down payment and the points. The correct total must consider both of these components, which do not align with this number.

C ($61,500) YOUR ANSWER

This figure appears to be an attempt to calculate the down payment plus a portion of the points, but it fails to accurately determine either component. The correct total includes a complete calculation of both the down payment and the points based on the loan amount.

D ($68,500) CORRECT

This choice correctly combines the 15% down payment of $60,000 with the points charged by the lender. The points are calculated at 2.5% of the loan amount of $340,000 (the home price minus the down payment), which equals $8,500. Therefore, the total upfront cost is $60,000 + $8,500 = $68,500.

Conclusion

To purchase the home, the buyer must account for both the down payment and the lender's points. By accurately calculating these amounts, we find that the total upfront cost required is $68,500. This includes the down payment of $60,000 and the points of $8,500, ensuring the buyer is prepared for the financial commitment involved in the home purchase.

A buyer wants to purchase a home for $400,000 with a 15% down payment. The lender charges 2.5 points. How much money does the buyer need up front to make the purchase?

$68,500 is the total amount of money the buyer needs up front to make the purchase.

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