DLSMortgageMatters

Three Reasons Why Sellers Should Consider Seller-Paid Points

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"Seller-paid points" are where you pay points to reduce the interest rate on the buyer's mortgage.  One point = 1% of the loan amount paid upfront to the buyer's mortgage lender at the closing, in exchange for a lower interest rate on the buyer's mortgage.

Consider a home where the list price is $300,000 and you are willing to accept a bottom line of $291,000.  You would need reduce the price by $9,000. However, what if you take that $9,000 and apply it toward paying points on the buyer's mortgage instead of reducing your list price?  You'd still walk away with a net of $291,000.  However, there are three extra benefits to you in this scenario.

#1 - Your House Becomes More Affordable to a Wider Pool of Buyers

Paying points on behalf of the buyer can have almost 3 times the impact on the buyer's purchasing power vs. reducing your list price.  This is because most buyers use mortgage financing.  The buyer's mortgage interest rate would likely be 0.5% - 0.75% lower if you use the $9,000 to pay points on his/her behalf.  In our example, you'd have to reduce the price of your $300,000 home to approx. $280,000 in order to achieve the same monthly payment for the buyer.  This means your $9,000 in seller-paid points would end up having a $20,000 impact on the buyer's purchasing power and make your home more affordable to a wider pool of buyers.

#2 - You Reduce Your Risk of the Deal Falling Through

If you pay points on the behalf of the buyer, the buyer would walk away with:

• A lower APR on his/her mortgage; and,
• A lower debt-to-income (DTI) ratio because of the lower monthly payments

These two things make it easier for the buyer to qualify for a mortgage. The benefit to you is that you have less risk of the deal falling through because you're making it easier for the buyer to qualify for financing.