What Are Points, Anyway?

Real Estate

What Are Points, Anyway?

I was speaking with a buyer who asked me what the advantage to "buying points" in a real estate transaction were. A lot of time, however, most folks don't know what "points" are.  I wanted to share this quiz to show you what a "point" is.

A quick quiz: mortgage “points” are

a) certain charges paid to obtain a home mortgage

b) the gross profit for the originator of the loan

c) up-front mortgage interest fees to reduce the interest rate

d) each equal to 1 percent of the total loan amount

e) loan origination fees

f) charged by a lender to raise the yield on a loan when money is tight, interest rates are high, or there is a legal limit on the interest rate that can be charged on a mortgage

g) come in two varieties

h) all of the above

 

Answer: h.

The reasons for points vary buyer by buyer.  In this case, my client is considering a VA loan.  In a VA loan (and other types of loans), negotiations can lead to a seller making a contribution to the buyer.  This contribution can be used towards closing costs, but can also be used to buy down the interest rate (points).  Thinking about buying or selling or know someone who might be considering?  Give me a call.  Either for yourself, or to give me their information.  There are many creative ways to get in to a home today and I have access to many programs.