# When selling - how would buying a point help

We are trying to come up with creative incentives to sell our house. I have read about "buying a point", but I don't understand how that works and the benefits.

Our house is listed at \$469,900. How much would it cost us to buy a point and how do we advertise that?
November 14 2007 - US

#### Replies (4)

• Contributions:253
All you are doing is paying the buyer's rate down by paying the fee that would normally be charged to them. A "point" is 1% of the sales price...\$4,699 in your scenario.

If you help to buy the borrower's rate down instead of lowering the sales price, you can often times lower their payment significantly. I'll give you an example:

Sales Price = \$550,000
20% down payment
Loan amount = \$440,000
30 year fixed rate @ 6.25%
P&I Payment = \$2709.00

Example 2: Price Reduction of \$20,000
Sales price: \$530,000
20% down payment
Loan amount = \$424,000
30 year fixed rate @ 6.25%
P&I Payment = \$2610.00
The price reduction equated to a savings of only \$99.00 per month

Example 3: Seller Credit of \$20,000
Sales Price = \$550.000 (with \$20,000 in seller credit to closing costs)
20% down payment
Loan amount = \$440,000
30 year fixed rate @ 5.00%
P&I Payment = \$2362.00
That is a savings of \$248.00 per month when compared to the price reduction
example.
November 14 2007
Wow - thank you for that information. We are looking to lower our price to be more competitive, but a \$20,000 credit towards closing costs or to buy down the point looks attractive too. We can't do both obviously. We are priced a bit high and have wiggle room.

I wonder which is more attractive to a buyer. A lower price or \$20,000 credit to closing costs?

We're in Canton, GA (suburb of Atlanta) and our neighborhood is very slow right now...even the homes with much lower prices (because they are older and smaller than ours) are slow.

Does anyone have a crystal ball that can tell us what to do?
November 14 2007
A point is one percent of the loan amount. If the loan amount was \$400,000 let's say, the point would cost you \$4000. Typically, as a good rule of thumb one point paid usually equates to .375% or so in rate discount. I would say if you just offer a plain closing cost concession and let the borrower use if for whatever they need you would probably be better off...
November 14 2007
• Contributions:253
Marispel,

There are limits to how much a seller can contribute and it depends on how much money your buyer is putting down. A qualified mortgage professional should be able to give you the specific help you need in determining what is possible. The typical limit is 3% if the borrower is using a down payment less than 10%. However, it can go as high as 6% if the buyer is putting enough down payment into the transaction.

This really comes down to how you market the idea. If you are going to throw money at the buyer....in the form of Seller Concessions or Price Reduction, you need to show them how it affects the payment. If you market this technique properly, you will be quoting a lower payment than other listings...and you'll be keeping property values higher in the neighborhood because you are not lowering the price as much.
November 14 2007

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