A buyer wants to purchase a home for $400,000 with a 20% down payment. The lender charges 1.5 points. How much money does the buyer need up front to make the purchase?

Rationale

$80,150 is the total amount the buyer needs upfront to purchase the home.

To determine the total upfront cost, we first calculate the down payment and then add the cost of the points charged by the lender. The down payment is 15% of $400,000, which equals $60,000. The lender's 2.5 points on the loan amount (after the down payment) adds $20,150, resulting in a total upfront cost of $80,150.

A ($80,000) YOUR ANSWER

This choice only accounts for the down payment, which is 15% of the home price. While the down payment is essential, it does not include additional costs such as points. Thus, it significantly underestimates the total upfront amount required.

B ($86,000) YOUR ANSWER

This option incorrectly calculates the total by either misestimating the down payment or not accounting for the points. It does not reflect the accurate combination of the down payment and the costs associated with the loan, resulting in an insufficient amount for the home purchase.

C ($81,200) YOUR ANSWER

While this figure is closer to the correct total, it still fails to accurately calculate the lender's points. The correct upfront cost includes specific calculations for both the down payment and the points, making this choice slightly lower than the actual requirement.

D ($84,800) CORRECT

This choice correctly combines the down payment of $60,000 and the lender's points of $20,150, which are calculated from the loan amount after the down payment. This total reflects the precise amount the buyer needs to prepare upfront.

Conclusion

To purchase the home, the buyer must account for both the down payment and the lender's points. The correct total upfront amount of $80,150 includes both components, ensuring that the buyer is adequately prepared for the financial commitment involved in acquiring the property. Understanding all costs associated with home buying is crucial for prospective buyers to plan their finances effectively.

A buyer wants to purchase a home for $400,000 with a 20% down payment. The lender charges 1.5 points. How much money does the buyer need up front to make the purchase?

$80,150 is the total amount the buyer needs upfront to purchase the home.

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