14. 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 purchase a home for $400,000 with a 15% down payment, the buyer must pay $60,000 as the down payment. Additionally, the lender charges 2.5 points on the loan amount, which adds to the upfront cost, bringing the total to $68,500.
A) $60,000
Option A reflects only the down payment amount of 15%, which is calculated as 15% of $400,000. While this figure is correct for the down payment, it does not include the additional costs associated with the points charged by the lender.
B) $70,000
Option B incorrectly adds an arbitrary amount to the down payment. This figure does not accurately represent the total upfront costs required to purchase the home, as it fails to account for the correct calculation of points on the loan amount.
C) $61,500
Option C underestimates the total upfront costs by not accurately calculating the points. The down payment of $60,000 is correct, but the addition of points is miscalculated, leading to an incomplete total.
D) $68,500
This option correctly combines the down payment of $60,000 with the cost of the points. The loan amount after the down payment is $340,000 (i.e., $400,000 - $60,000), and 2.5 points on this amount is $8,500. Thus, the total upfront cost is $60,000 + $8,500 = $68,500.
Conclusion
The correct answer is D) $68,500, as it accurately reflects the total amount needed upfront, combining the down payment and the cost of the points charged by the lender. Options A, B, and C fail to account for the additional costs related to the points, making them incorrect in this context.