25. A buyer wants to purchase a home for $400,000 with a 15% down payment. The lender charges 2.5 points. How much money does the buyer need up front to make the purchase?
Answer: D
The buyer needs $68,500 up front to make the purchase.
To determine the total amount the buyer needs to pay up front for the home purchase, we calculate the down payment and the points charged by the lender. The down payment on a $400,000 home at 15% is $60,000, and the points amount to $10,000, leading to a total of $68,500.
A) $60,000
This option represents only the down payment, which is 15% of the purchase price. While it is a significant part of the total amount needed, it does not account for the additional costs from the lender's points.
B) $70,000
This amount does not accurately reflect either the down payment or the points. It is higher than the calculated total of $68,500, indicating a misunderstanding of the costs involved in the transaction.
C) $61,500
This choice is also incorrect. It does not correctly add the points to the down payment, falling short of the necessary total amount that includes both components.
D) $68,500
This is the correct answer. It accurately accounts for both the down payment of $60,000 and the points charged by the lender, which is $10,000 (2.5% of $400,000), making the total up front cost $68,500.
Conclusion
The correct answer of $68,500 includes both the down payment and the points, ensuring that the buyer is fully prepared for the upfront costs of the home purchase. All other options fail to account for either one of these essential components, leading to an incomplete calculation of the required funds.