Question 26

The buyer needs $59,950 up front to make the purchase.

To calculate the total upfront cost for the buyer, we need to consider both the down payment and the points charged by the lender. The down payment is 20% of the purchase price, which amounts to $55,000, and the points, calculated as a percentage of the loan amount, add an additional cost, bringing the total upfront amount to $59,950.

A) $55,000

This option only represents the down payment required, which is 20% of the purchase price of $275,000. While the down payment is indeed $55,000, it fails to include the additional costs associated with the lender's points, making it an incomplete answer.

B) $61,188

This figure does not correspond to either the down payment or the total costs. It incorrectly calculates the upfront amount, possibly misinterpreting the points or failing to account for them appropriately, thus making this option incorrect.

C) $56,238

This option also does not represent the correct total upfront payment. It appears to be a miscalculation of the points or the down payment amount, as it fails to accurately reflect the true cost the buyer needs to provide initially.

D) $59,950

This is the correct answer, as it accurately encompasses both the down payment of $55,000 and the cost of the points charged by the lender. The points are 2.25% of the loan amount, which is calculated based on the purchase price minus the down payment, leading to a total upfront cost of $59,950.

Conclusion

The correct upfront amount of $59,950 includes both the down payment and the points charged by the lender, making it essential for the buyer to account for all costs involved in the home purchase. Options A, B, and C do not provide the complete financial picture, as they either miss the lender's points or miscalculate the total upfront requirement. Thus, option D is definitively the right choice.