| POINTS EXPLAINED |
|
|
| WHAT IS A POINT? |
| One
point is equal to 1% of the NEW Loan Amount |
| |
| WHY DO LENDERS CHARGE POINTS? |
|
Whenever government regulation, state usury laws and/or competitive practices prohibit the
lender from charging a rate of interest which would make the real estate loan competitive
with other fields of investments, the lender must seek some method of increasing the yield
for the investors. By charging "points", the lender can bring the real estate
loan up to those other investments. |
|
|
| WHAT IS A LOAN ORIGINATION FEE? |
| A fee
charged the borrower by the lending institution. |
| |
| WHAT IS A FUNDING FEE? |
| Fee
charged by the Veteran’s Administration for VA loans, 2% for the first time, 3% if a
VA loan was used prior to the new loan. |
| |
| WHO MUST PAY THE POINTS? |
|
FHA: the Buyer is usually charged with the Loan Origination Fee; the Discount Fee can be
paid by Buyer or Seller. VA: the Buyer is usually charged with the Loan Origination Fee
and the Funding Fee. Discount Fee can be paid by the Seller or Buyer. |
|
|
| DO THE NUMBER OF POINTS CHARGED FLUCTUATE? |
| Yes.
If rates on mortgage loans are lower than other investments (such as stocks, bonds, etc.)
Then funds will be drawn away from the mortgage market. Also, when there is a heavy demand
upon the money market because of business needs, military requirements or other government
borrowing, the result is that money for home mortgages becomes scarce and more expensive.
When this occurs, more points can be changed. Points balance the market. Points are not
set by government regulations but by each lender individually. |
|
|
| IS FHA OR VA FINANCING UNFAIR TO SELLERS? |
| No.
Homes can sell faster because more buyers can qualify with the lower down payment
requirement, lower interest rate, - long term loans with lowest monthly payments. Sellers
receive all cash for their equity to reinvest in a new home or other investment. The
purpose of these loans is to provide purchasers the opportunity to buy homes with minimal
cash investment thus providing a bigger market for sellers. |
|
|
| ARE POINTS DEDUCTIBLE FOR INCOME TAX PURPOSES? |
| Points
on a home mortgage (for the purchase or improvement of, and secured by, the
taxpayer’s principal residence) are deductible currently if points are generally
charged in the geographical area where the loan is 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 points
being deductible you should contact your tax return preparer. |
Return to Top |
| |
®
