Say you’re interested in buying a home listed for $300,000, where the seller is willing to settle for a bottom line of $291,000.
You could ask the seller to knock $9,000 off the list price. But in that scenario, you might be better off asking the seller to instead contribute $9,000 toward your closing costs in the form of “seller-paid points” that reduce the interest rate on your mortgage.
The seller would still get the same amount of money. But the latter scenario has some major advantages for you.
First of all, you’d end up paying a lower interest rate and monthly payment. Your mortgage balance may be a little more. But if the seller pays two or three points upfront, your interest rate will likely be .5-to-.75 percent lower.
And that translates to much greater total savings over the life of the loan. Getting $9,000 off the list price means a savings of $9,000. But $9,000 in seller-paid points amounts to savings of about $27,000 over 30 years.
As an added bonus, the lower interest rate, APR and monthly payment will all reduce your debt ratio. Which means that getting seller paid points, as opposed to a reduction in price, will likely make it easier for you to qualify for financing in the first place.