A building was purchased for 85,000 with 10 percent down and a loan for the balance. If the lender charged two discount points, how much cash did the buyer need to come up with at closing if the buyer incurred no other costs?

A building was purchased for 85,000 with 10 percent down and a loan for the balance. If the lender charged two discount points, how much cash did the buyer need to come up with at closing if the buyer incurred no other costs?

• A. 9,000
• B. 10,030
• C. 11,000
• D. 12,000

Answer: (B)

This tests how to calculate cash required at closing when there is a down payment and discount points. The purchase price is 85,000, and the down payment at 10% is 8,500. The loan balance, before points, is 85,000 minus 8,500, which equals 76,500. Discount points are prepaid interest and are a percentage of the loan amount; two points equal 2% of 76,500. 2% of 76,500 is 1,530. Add the down payment and the points paid at closing: 8,500 + 1,530 = 10,030. Therefore, the cash needed at closing is 10,030.

This tests how to calculate cash required at closing when there is a down payment and discount points. The purchase price is 85,000, and the down payment at 10% is 8,500. The loan balance, before points, is 85,000 minus 8,500, which equals 76,500. Discount points are prepaid interest and are a percentage of the loan amount; two points equal 2% of 76,500. 2% of 76,500 is 1,530. Add the down payment and the points paid at closing: 8,500 + 1,530 = 10,030. Therefore, the cash needed at closing is 10,030.