15. A buyer wants to purchase a home for $400,000 with a 20% down payment. The lender charges 1.5 points. How much money does the buyer need up front to make the purchase?
Answer: D
The buyer needs $84,800 up front to make the purchase.
To calculate the upfront cost for the buyer, we first determine the down payment and then add the points charged by the lender. A 20% down payment on a $400,000 home is $80,000. The lender charges 1.5 points on the total loan amount, which is $6,000 (1.5% of $400,000). Therefore, the total upfront cost is $80,000 + $6,000 = $86,000.
A) $80,000
This option only accounts for the down payment without including the lender's points. While $80,000 is indeed the correct down payment amount for a $400,000 home with 20% down, it does not reflect the total upfront cost needed to complete the purchase.
B) $86,000
This option mistakenly combines the down payment and points but miscalculates the points. While it reflects an understanding of the down payment, it incorrectly states the total upfront cost, which includes additional fees beyond just the down payment.
C) $81,200
This option appears to be an arbitrary figure that does not accurately represent either the down payment or the points charged by the lender. It fails to consider the correct calculations required to determine the total upfront cost for the buyer.
D) $84,800
This is the correct total upfront amount the buyer needs. It correctly combines the down payment of $80,000 with the lender's points of $4,800 (1.5% of $320,000 after the down payment), leading to a total of $84,800. This option accurately reflects the financial requirements of the transaction.
Conclusion
The correct answer, $84,800, includes both the required down payment and the lender's points, ensuring a complete understanding of the upfront costs involved in purchasing the home. All other options fail to account fully for either the points or the proper calculations needed to arrive at the total upfront amount, making them incorrect in this context.