In today’s economic environment, it is becoming more common for buyers to request that sellers pay all or a portion of their closing costs and discount points, typically 3% of the sale price, to help them obtain a home mortgage.
What are points?
Discount points are a fee paid to a lender to help a buyer get a real estate loan.
How are they figured?
One discount point is 1% of the amount financed, NOT the sale price of the property. For example, three points on a $60,000 loan would be 3% x $60,000 or $1,800.
Why are they necessary?
Sometimes, a buyer may not qualify for a loan because the interest rate is too high for their income level. Points paid to a lender usually reduce the interest rate, making the loan more affordable, which opens up the market to more potential buyers for a property. Also, many buyers have limited funds available, not enough to cover all of the typical buyers closing costs.
Who pays the points?
Discount points are negotiable, and may be paid by either party, except that certain government sponsored loans for low to moderate income buyers require the Seller to pay points. Sometimes, the sale price may be increased to cover the cost of the points, or other buyer closing costs, but the property must then meet appraisal requirements. Consult your sales professional for advice when negotiating discount points and closing costs.
Seller paid buyer closing costs are designed to make it easier for purchasers to get home financing. It can be advantageous for sellers to pay a reasonable amount of concessions, thereby opening up the market to more prospective buyers, and increase the chances of a quicker sale at a fair price.