85. 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.
This amount includes the down payment and the points charged by the lender. Specifically, the buyer must cover 20% of the home's price and the cost associated with the points.
A) $80,000
This option represents only the down payment amount, which is 20% of the home price ($400,000). However, it does not include the additional cost of the lender's points, making it insufficient for the total upfront requirement.
B) $86,000
This option exceeds the necessary calculations. The down payment is $80,000, and adding points would not result in this amount. Therefore, it does not accurately reflect the total upfront cost needed for the purchase.
C) $81,200
This figure is incorrect as it reflects an incorrect calculation of the points. It does not accurately represent the total upfront cost of the purchase when considering both the down payment and the points charged by the lender.
D) $84,800
This is the correct amount needed up front. The down payment is $80,000, and the lender charges 1.5 points on the loan amount. The loan amount is $320,000 (the home price minus the down payment), making the points $4,800 (1.5% of $320,000). When combined, the total upfront cost is $84,800.
Conclusion
The correct answer is $84,800, as it accurately includes both the required down payment and the cost of the points charged by the lender. Other options fail to incorporate these essential components of the upfront costs, leading to inaccurate figures. Thus, only option D reflects the true financial requirement for the home purchase.