101. A buyer wants to purchase a home for $275,000 with a 20% down payment. The lender charges 2.25 points. How much money does the buyer need up front to make the purchase?
Answer: B
The buyer needs $61,188 up front to make the purchase.
To determine the upfront cost for the buyer, we first calculate the down payment of 20% on the home price of $275,000, which is $55,000. Then, we calculate the lender's points, which are 2.25% of the loan amount (the purchase price minus the down payment), resulting in an additional cost that brings the total upfront money required to $61,188.
A) $55,000
This option represents only the down payment amount of 20% on the home price. It does not include the additional costs associated with the lender's points, which are a crucial part of the total upfront payment needed to finalize the purchase.
B) $61,188
This option correctly accounts for both the 20% down payment of $55,000 and the lender's points. The points amount to $6,188, calculated as 2.25% of the loan amount ($220,000), making this the total upfront amount needed by the buyer.
C) $56,238
This option incorrectly combines the down payment and an incorrect calculation of the lender's points. It does not reflect the correct total amount required upfront, as it underestimates the cost related to the points charged by the lender.
D) $59,950
This option also fails to accurately calculate the total upfront costs. It might be an attempt to include the down payment and some points, but it does not reflect the accurate figures based on the calculations required for both components of the upfront payment.
Conclusion
Option B is definitively correct as it encompasses both the down payment and the costs associated with the lender's points, providing a complete view of the upfront financial requirement. All other options fail to include the necessary calculations for points or only represent partial costs, making them incorrect.