A buyer uses what financial concept by paying $40,000 down on a $200,000 home and borrowing $160,000?

The correct answer highlights the concept of leverage in real estate. Leverage refers to the use of borrowed funds to increase the potential return on investment. In this scenario, the buyer puts down $40,000 as a down payment on a $200,000 home and finances the remainder with a $160,000 loan.

By using a relatively small portion of their own capital ($40,000) to control a larger asset worth $200,000, the buyer is effectively leveraging their investment. This strategy allows the buyer to benefit from any appreciation in the property’s value based on the total purchase price, rather than just the amount of their own money invested. If the home increases in value, the returns on the equity built through price appreciation will be magnified due to the leverage created by borrowing.

Other concepts such as equity and amortization are related but focus on different aspects. Equity represents the ownership interest in the property, calculated as the current market value minus any debts owed. Amortization relates to the repayment structure of loans over time and does not directly describe the financial strategy being employed in this scenario. Affordability, while relevant to the buyer's ability to purchase a home, is not the primary concept illustrated through the action of making a