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In today’s challenging housing market, selling a home can call for creative strategies to attract buyers. One strategy is leveraging seller-paid mortgage points to make your home more appealing by reducing buyers’ mortgage rates. Read on to learn how mortgage points can help you stand out without lowering your listing price.
Evaluating market conditions
As of spring 2024, mortgage rates have remained high, with average APRs for 30-year fixed-rate mortgages exceeding 7%. Home prices are likewise high, presenting a challenge for buyers on a budget. The reasons for these difficult conditions are complex. The housing supply can’t meet the demand, which pushes prices higher. In addition, the Federal Reserve has increased interest rates to respond to inflation in recent years.
Families and individuals who want a home may not be able to afford one under the current conditions. They may instead wait for prices and rates to drop. For sellers, that means a smaller buyer pool.
If you’re trying to sell a home, you may have to balance two competing priorities: selling quickly and receiving the highest possible offer. Competitive pricing helps bring in buyers, but you don’t want to compromise on your home’s value. Seller-paid mortgage points could attract buyers who are on the fence by reducing their mortgage rate.
What are seller-paid points?
Mortgage points lower a homebuyer’s interest costs over the life of the loan. Typically, buyers purchase each point from the lender at closing. Each point brings down the interest rate by a fraction of a percent. Often, each point costs 1% of the principal and reduces the interest rate by around .25%, but rates may vary across lenders. Paying for points yourself could make your home more enticing for buyers by reducing their costs. When a home seller purchases points, they’re called “seller-paid points.”
Seller-paid points aren’t the only way you might make the sale of your home more appealing. Sellers could also cover some of the closing costs, like origination or inspection fees. These are called seller concessions. While concessions could make a purchase more attractive, there are limits to the amount a seller can cover. Mortgage points don’t count toward the concessions, because they don’t affect closing costs. Instead, they go directly to the lender and reduce interest.
Leveraging seller-paid points
In a competitive market, seller-paid points can help your listing stand out and attract a wider range of buyers. Seller-paid points offer a competitive advantage over similarly valued properties, so you could sell your house more quickly. Even when rates are high, seller-paid points could help you make the sale. Mortgage points lower a buyer’s monthly payment, which means they have an immediate and long-term impact. A couple of mortgage points could knock payments down by $20, $50, or $100, expanding your buyer pool to shoppers with slightly lower monthly budgets. Points could help save the buyer tens of thousands of dollars in interest, especially if they have relatively long terms.
Buying points allows sellers to reap some of the benefits of a lower listing price at a lower cost to you. For example, consider a home with a $300,000 20-year mortgage and 3.5% interest rate. Two mortgage points would likely cost about $6,000. Over the lifetime of the loan, that would save the buyer $18,261. To secure a similar advantage on the market, you’d have to lower your listing price by over $18,000.
Your expense and the buyer’s savings depend on the terms, rates, and amount of each loan. However, you may be able to save thousands of dollars and secure a buyer faster.
Working with lenders to offer incentives
Favorable mortgage terms could be in your buyer’s best interest, especially if you hope to sell a home quickly. If you want to sweeten the deal for your potential buyers, work with their mortgage lenders to offer incentives. Collaborating with the lender can help you provide incentives to meet your buyers’ needs. You typically purchase mortgage points directly from the lender to offset interest costs. While the standard pricing structure for mortgage points is 1% of the loan cost for one point, or .25% of the interest rate, lenders set these rates. Communicating with them not only offers you vital insight into these costs but may give you the opportunity to negotiate prices.
The best incentives could benefit all parties: sellers sell their homes more quickly, buyers spend less, and lenders may have more security knowing buyers are less likely to back out of a deal. Those benefits could help guide negotiations with lenders. You may want to speak with the mortgage provider about their typical closing costs, especially if you hope to provide concessions. Clear communication with the mortgage lender could also help you set practical limits to the amount you’re willing to spend on incentives for buyers.
Communicating value to buyers
Mortgage points may provide both short-term benefits, in the form of lower monthly payments, and long-term benefits, in the form of overall interest savings. As you work to sell your home, it’s important to make sure buyers understand the value of mortgage points, how seller-paid and buyer-paid points work, and their impact on interest rates. Seller-paid mortgage points may be confusing, especially for first-time homebuyers.
Keep in mind that you may not be communicating with buyers directly. In that case, you’ll want to encourage your real estate agent to emphasize mortgage points with potential buyers after they express interest or tour the space. Agents should consider each buyer’s priorities as they stress these advantages and you and your agent should be prepared to answer questions about the process. Clear communication helps create a smooth transaction that helps leave all parties happy.
Disclaimer: Article content is intended for information only. It may not reflect the publisher nor employees’ views. Consult a mortgage professional before making financial decisions. Publishers or platforms may be compensated for access to third party websites.