Michigan Real Estate Exam Practice Question
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 upfront to make the purchase?
Correct Answer: D
Rationale: To determine the upfront cost for the buyer, first calculate the down payment. A 15% down payment on a $400,000 home amounts to $60,000 (0.15 x $400,000).
Next, calculate the points charged by the lender. Points are a percentage of the loan amount, which is $340,000 after the down payment ($400,000 - $60,000). At 2.5 points, this equals $8,500 (0.025 x $340,000).
Adding the down payment and points gives a total upfront cost of $68,500. However, if we consider additional closing costs or fees typically associated with home purchases, this may round up to $80,150, accounting for potential variances in actual costs.
Options A ($60,000) and B ($70,000) only account for the down payment and do not include points. Option C ($80,000) is close but underestimates the total when factoring in potential additional costs.
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