As a Seller, You May Be Asked to "Pay Points".
Whether called points, discount points, loan brokerage fee, or new loan fee, they are all the same. Points provide the magic behind a large number of home sales. So, since points are such a vital part of selling in today's market, an understanding of them is important.
What exactly are points? Points are the money that is paid to the lender, allowing the lender to make loans at a regulated, lower than market interest rate and still obtain the desired rate of return.
Why not just raise the interest rate? In order to allow more people to buy their own home, the U.S. government established the FHA and VA loan programs. The VA program was established to assist our war veterans, and later all veterans, by eliminating the required down payment. The FHA program was developed to assist low to medium income families to purchase a home by reducing the required down payment. Originally, both programs were regulated by the government, which established the maximum interest that a lender may charge. However, the VA program was changed after inception, and only FHA loans have a regulated maximum interest rate. This maximum rate is often slightly below the going rate for mortgage money and thus the need for points to supplement the difference.
How are points figured? One point is one percent (1 %) of the loan amount. Five points on a $60,000 loan would be 5 % of 60,000 or $3000.
Who can pay the points: either the buyer or seller can pay all or some of the points.
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