1. A building was purchased for $350,000 with a 20% down payment. If the lender charges the buyer three discount points, how much will the buyer pay in points?
Answer: C
The buyer will pay $8,400 in points.
To calculate the amount the buyer will pay in points, first determine the loan amount after the down payment. The down payment on a $350,000 building is $70,000 (20%), resulting in a loan amount of $280,000. With three discount points, which are 3% of the loan amount, the buyer will pay $8,400.
A) $6,160
This amount is incorrect because it does not represent 3% of the loan amount. Calculating 3% of $280,000 yields $8,400, not $6,160. Thus, this option is not valid.
B) $7,000
This option is also incorrect. Similar to Option A, $7,000 does not equal 3% of the loan amount of $280,000. The correct calculation of 3% results in $8,400, making this option incorrect.
C) $8,400
This is the correct answer. The calculation involves taking 3% of the loan amount, which is $280,000. Thus, 3% of $280,000 equals $8,400, confirming that this option accurately reflects the cost of the discount points.
D) $10,500
This figure is incorrect as it does not represent 3% of the loan amount. Instead, it exceeds the proper calculation significantly. The correct amount for three discount points on a $280,000 loan is $8,400, making this option invalid.
Conclusion
The correct answer, $8,400, is based on accurately calculating 3% of the loan amount after the down payment. All other options fail to represent this calculation correctly, either being too low or too high compared to the actual discount points charged. This emphasizes the importance of precise financial calculations in real estate transactions.