59. A buyer wants to purchase a home for $250,000 with a 25% down payment. The lender charges 1.75 points. How much money does the buyer need up front to make the purchase?
Answer: C
The buyer needs $63,594 up front to make the purchase.
To determine the total amount the buyer needs up front, first calculate the down payment and then the points charged by the lender. The down payment on a $250,000 home at 25% is $62,500. Additionally, the lender charges 1.75 points on the total loan amount, which adds to the upfront costs.
A) $62,500
This option represents the down payment alone, calculated as 25% of the home price. However, it does not include the additional cost of the points charged by the lender, making it insufficient for the total upfront amount required.
B) $66,875
This figure exceeds the necessary costs. While it accounts for both the down payment and the points, it does not reflect the correct calculations for points based on the loan amount, which leads to an overestimation of the total upfront costs.
C) $63,594
This option accurately combines the down payment of $62,500 with the cost of the points. The points are calculated as 1.75% of the loan amount ($250,000 - $62,500 = $187,500), which is $3,281.25, resulting in a total of $62,500 + $3,281.25 = $63,594. This is the correct total amount the buyer needs upfront.
D) $65,781
This option incorrectly calculates the total upfront cost. While it may include components of the down payment and points, it does not use the correct percentage or total amounts, leading to an incorrect final number that does not align with the required calculations.
Conclusion
The correct answer, $63,594, includes both the down payment and the points calculated accurately based on the loan amount. Options A, B, and D fail to provide the correct total, either omitting necessary components or miscalculating the figures, while Option C provides a comprehensive and precise total needed upfront for the purchase.