SAT Math Multiple Choice Question 820: Answer and Explanation
10. A housing down payment is money that a prospective buyer provides up front when purchasinga home and is usually a percent of the purchase price of the home. A lender typicallyrequires private mortgage insurance (PMI) when the buyer's down payment is less than20% of the purchase price. To secure a mortgage, buyers also need to have additionalcash on hand for closing costs and prepaid property tax. Suppose a buyer wants topurchase a $375,000 house and must have $7,200 on hand for closing costs and propertytax. Which of the following inequalities represents the total funds (f ) the buyer must have on hand to secure the mortgage without having to pay PMI?
Correct Answer: B
Category: Heart of Algebra / Inequalities
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Getting to the Answer: If a buyer puts down 20% or more of the purchase price, he or she can avoid paying PMI, which means the down payment must be greater than or equal to (≥) 20% of 375,000, or 0.2(375,000) (remember, "of" means multiply). Add this amount to the $7,200 for closing costs and property tax to find that the total funds needed are, which is (B).