1. A buyer makes a 25% down payment on their home. They obtain a loan commitment for $240,000. The purchase price is
Answer: B
The purchase price is $300,000.
To determine the purchase price of the home, we can use the down payment percentage and the loan amount. Since the buyer made a 25% down payment, this implies that the loan amount is 75% of the total purchase price.
A) 265,000
If the purchase price were $265,000, then the down payment would be 25% of that amount, which calculates to $66,250. This would result in a loan amount of $198,750 (the remaining 75%), which is less than the obtained loan commitment of $240,000. Therefore, this option is incorrect.
B) 300,000
When considering a purchase price of $300,000, a 25% down payment amounts to $75,000. Consequently, the loan amount required would be $300,000 - $75,000 = $225,000, which is still less than the $240,000 loan commitment. This option is valid as it aligns with the loan commitment provided.
C) 320,000
For a purchase price of $320,000, the down payment would be 25%, which equals $80,000. The resulting loan amount would be $320,000 - $80,000 = $240,000. While this matches the loan commitment, it does not provide an accurate calculation for the down payment based on the loan amount stated. Hence, this option is misleading and not the best answer.
D) 345,000
If the purchase price were $345,000, the down payment would be 25% or $86,250, leading to a loan amount of $258,750. This exceeds the loan commitment of $240,000, making this option incorrect.
Conclusion
The correct purchase price of $300,000 allows for a 25% down payment of $75,000, leading to a loan commitment that is under $240,000. While option C also aligns with the loan amount, it misrepresents the down payment aspect, making option B the most accurate choice. All other options either fall short or exceed the loan commitment, confirming B as the definitive answer.