Question 47

The buyer needs $78,938 up front to make the purchase.

To determine the upfront cost for the buyer, we calculate the down payment and the points charged by the lender. The down payment is 30% of the home price, which is $250,000, resulting in $75,000. Additionally, the lender charges 2.25 points on the total loan amount, which needs to be calculated based on the mortgage amount after the down payment.

A) $75,000

This option represents only the down payment of 30% of the home price. While $75,000 is indeed the correct down payment amount, it does not include the additional costs associated with the points charged by the lender, making this option incomplete.

B) $80,625

This amount is also incorrect. It does not accurately reflect the sum of the down payment and the cost associated with the points. The points are calculated as a percentage of the loan amount after the down payment, and this option fails to account for the necessary calculations to include those costs.

C) $76,688

This option miscalculates the total upfront amount needed. While it may include the down payment and some estimation of the points, it does not accurately reflect the precise calculation needed for the total upfront cost, resulting in an incorrect figure.

D) $78,938

This is the correct answer. The buyer’s total upfront cost includes the down payment of $75,000 plus the points charged by the lender. The points are calculated as 2.25% of the loan amount, which after the down payment is $175,000 (the total price minus the down payment). Thus, 2.25% of $175,000 equals $3,938, leading to a total upfront cost of $78,938.

Conclusion

The correct answer, $78,938, accurately reflects the total amount the buyer needs to provide upfront, combining both the down payment and the lender's points. The other options fail to consider the complete financial obligation required by the buyer, ultimately leading to incorrect calculations.