Seller's Points (or seller contributions) are

lump sum A lump sum is a single payment of money, as opposed to a series of payments made over time (such as an annuity). The United States Department of Housing and Urban Development distinguishes between " price analysis" and " cost analysis" by whether ...

payments (or finance charges) made by the seller to the buyer's

lender A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...

to reduce the cost of the

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

to the buyer. One point is equal to 1% of the loan amount. The payment can either be required by the lender or volunteered by the seller. Typically, this situation takes place when the seller is in a rush to sell the property or has had issues finding a buyer. These costs are non-recurring

closing costs Closing may refer to: Business and law * Closing (law), a closing argument, a summation * Closing (real estate), the final step in executing a real estate transaction * Closing (sales), the process of making a sale * Closing a business, the pro ...

that are also

tax breaks Tax break also known as tax preferences, tax concession, and tax relief, are a method of reduction to the tax liability of taxpayers. Government usually applies them to stimulate the economy and increase the solvency of the population. By this fis ...

for the ''buyers''.

Benefits and Uses

Benefits

Buyers can use seller's points to pay for prepaid costs, mortgage interest or temporary rate buydowns. This means that if you have money in savings that you must retain, you could ask the seller to pay for a 1 to 2 percent interest rate reduction for a year or prepay your interest, homeowner’s association fees or homeowner’s insurance for a set period. That would give you time to replenish your savings account for the money you used at closing and maintain your 3.5 percent equity investment in the property.

Uses

If a buyer is planning to use savings to pay for closing costs,

discount points Discount points, also called mortgage points or simply points, are a form of pre-paid interest available in the United States when arranging a mortgage. One point equals one percent of the loan amount. By charging a borrower points, a lender effe ...

or rate buydowns, the cash can apply to a

down payment In accounting, a down payment (also called a deposit in British English) is an initial up-front partial payment for the purchase of expensive goods or services such as a car or a house. It is usually paid in cash or equivalent at the time of fin ...

instead. It can be used to keep a payment under a certain dollar amount. A lender could suggest paying discount points to lower the buyer's

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

and make the buyer's payment more affordable. If the buyer cannot afford to pay points and his or her

at closing, his or her agent asks the seller to pay all or part of the discount points and

in his or her offer instead of asking for a reduced price. The seller gets the same net as the offer and the buyer gets to keep the points he or she wants while still keeping the cash needed to pay the whole down payment.

References

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External links

Using Seller's Points
Debt Loans Banking terms