Question 67

The buyer needs $84,800 up front to make the purchase.

To calculate the total upfront money required, the buyer must pay the down payment and the points charged by the lender. The down payment is 20% of $400,000, which is $80,000. Additionally, the buyer needs to pay 1.5 points on the total loan amount of $320,000 (which is $400,000 minus the down payment), resulting in an additional cost of $4,800. Therefore, the total upfront amount is $80,000 + $4,800 = $84,800.

A) $80,000

This option represents only the down payment amount required for the home purchase. While $80,000 is indeed the correct down payment for a $400,000 home at 20%, it does not account for the additional costs associated with points, making this option incorrect for the total upfront cash needed.

B) $86,000

This figure incorrectly adds an amount that does not correspond with the correct calculations of either the down payment or points. There is no logical basis in the context to arrive at $86,000, as it overshoots the necessary calculations for both the down payment and points, thus making this option incorrect.

C) $81,200

This option reflects an incorrect calculation of the total upfront cost. While it seems to account for the down payment, it miscalculates the points or does not accurately represent the total cost needed. Therefore, this option does not align with the correct total upfront money required by the buyer.

D) $84,800

This option correctly combines the down payment of $80,000 and the points charged, which is $4,800 (1.5% of the loan amount of $320,000). Hence, this total correctly represents the full amount the buyer needs to provide upfront.

Conclusion

The correct answer of $84,800 encompasses both the necessary down payment and the lender's points, providing a complete picture of the upfront costs associated with purchasing the home. Other options fail to account for one or both of these essential components, making them incorrect in the context of the buyer's financial requirements.