Three Ways Buyers Benefit from Seller-Paid Points

Here's a great negotiating strategy for a changing market.

"Seller-paid points" are where the seller pays points to reduce the interest rate on your mortgage. One point = 1% of the loan amount paid up front to your mortgage lender at the closing. This buys you a lower interest rate on your mortgage and a lower monthly payment. Here are three ways you can benefit from this strategy as a buyer:

1 - More Purchasing Power

Paying points to reduce your rate can have 2-3 times the impact on your purchasing power vs. reducing the purchase price by that same amount. For example:

  2 points on a $500,000 mortgage is $10,000. You'd probably need to reduce your purchase price by $20,000 - $30,000 in order to have the same impact on your monthly payment

  2 points on a $1,000,000 mortgage is $20,000. You'd probably need to reduce your purchase price by $40,000 - $60,000 in order to have the same impact on your monthly payment

2 - Less Interest Cost Over the Life of the Loan

Your total savings over the life of the loan is likely to be significantly more with seller-paid points vs. a reduction in the purchase price. In fact, it could end up being 2-3 times the impact, depending on the specifics of your situation.

3 - Easier to Qualify for a Mortgage

Your interest rate, your APR, and your monthly payment would all be lower with seller-paid points vs. a reduction in the purchase price. This means that your debt ratio would also be lower and it would likely be easier for you to qualify for financing. Let me know if you'd like for me to run some numbers and see if seller-paid points might make sense in your situation!

[credit: Brian Reno, BDR Mortgage Capital | source: Momentifi]