|Real Estate Points
Charging Points - New Loans - Home Mortgage Rates - Lock In A Rate
Why do Lenders charge points? Whenever government regulation, state usury laws, and/or competitive practices exclude a lender from charging a rate of interest to make the real estate loan competitive with other investment fields, a lender must seek some method to increase the yield for his investors. By charging points, the lender can bring the value of the real estate loan up to the value of these other investment tools.
What is a point? One point is equal to 1% of the new Loan Amount.
What are some other names for points? Commitment Fees, Loan Origination Fees, Discount Fees, Funding Fees.
Who pays points?
- VA: The Buyer is usually charged with the Loan Origination Fee and the Funding Fee. Discount Fee must be paid by the Seller.
- FHA: The Buyer is usually charged with the real estate Loan Origination Fee; the Discount Fee can be paid by Buyer or Seller.
- Conventional: Points can be paid by the Buyer, the Seller, or split between the two. Ensure that you state on the Contract of Sale: "the City or County or State Government Sponsored Loan and the government entity's description."
Is there fluctuation in the number of points charged? Yes. If rates on mortgage home loans are lower than other investments (such as stocks, bonds, etc.) then funds will be drawn away from the mortgage market. In addition, when heavy demand is placed upon the money market because of business demands, military requirements, or other types of government borrowing, the money for home mortgages diminishes and becomes more expensive. If this happens, additional points may be charged; points balance the market, and are not set by government regulation but, instead, they are individually set by each lender.
Can you lock in points on VA loans? Yes, but this could very well jeopardize the real estate sale. Even when a lender stipulates in writing the number of points to be charged, that guarantee states, "if the interest rate is not changed by the government." Points charged on an FHA or conventional home loan are usually not changed from commitment to settlement.
How does VA or FHS financing effect Sellers? Homes can sell faster because more buyers can qualify with the lower down payment requirement, the lower interest rate, and the long-term home loans with lowest monthly payments. Sellers receive cash for their real estate equity to reinvest in a new home or other real estate investment. The purpose of these real estate loans is to provide buyers the opportunity to buy a home with minimal cash investment thus providing a bigger market for real estate sellers.
Can I deduct points on my Income Tax? Points on a home mortgage (for purchase of or improvement of, and secured by, the taxpayer's residence) may be deductible if points are generally charged in the geographical area where the real estate loan was made and to the extent of the number of points generally charged in that area for a home loan. If you are in doubt about the deductibility of points, contact your tax preparer or CPA.
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