Points: Buying & Selling

One of the first questions lenders hear from prospective clients is DO YOU CHARGE POINTS? While the meaning behind the question is fair, learning what points are will help you understand an important piece of the mortgage process.

To begin, let’s start with a definition:

Points – Fees paid to or received by the lender, which directly impact your rate, either by lowering or raising it. One point equates to 1% of your loan amount.

Using the above definitions, we can now better understand that points directly affect your mortgage rate. The act of buying points refers to paying fees upfront to secure a lower rate, while selling points is just the opposite. When you sell points, you are accepting a higher rate in return for credit from the lender to cover some or all of your closing costs.

Is buying or selling points right for you? Depends upon your particular situation. Take a look at the example below:

$700,000       Loan Amount

       4.25%     Standard Rate

     $3,443     Monthly Payment

Now let’s take a look at what happens when we buy 1 point (or 1%), which reduces the rate by .25%.

$700,000       Loan Amount

       4.00%     Standard Rate

     $3,341     Monthly Payment

     $7,000      Points Charge (1% of loan amount)

         $102      Monthly Savings

             68      # of months to break even ($7000/$102 = 68)

Does it make sense to buy points in this case? Generally speaking, I would say NO. 5+ years to get your money back is much too long. A similar calculation can be done regarding selling points here to determine if it makes sense, given your situation.

I hope this helps to unravel the mystery surrounding points. Please reach out should you desire any further clarification regarding how points work, or want to walk through your mortgage options with one of our loan officers.

Levels of Qualification

Not All Approvals Are Created Equal

Is there really a difference between a pre-qualification, a pre-approval and a Platinum Approval? Absolutely! Let’s take a moment to explore the differences.

Pre-Qualification
This is the most basic form of approval and in all transparency, it’s not really an approval at all. Rather, a pre-qualification typically amounts to no more than a peripheral conversation between the buyer and a lender to estimate the amount a buyer can borrow. It does not involve a review of income and asset documentation and does not involve a credit report being pulled. Most sellers would scoff at such an “approval” if a buyer made an offer on their property with this level of commitment.

Pre-Approval
The pre-approval has become the gold standard of the industry. The process includes a lender’s evaluation of the buyer’s income, assets and credit. Through careful examination of this info, the lender will produce a conditional loan approval, Typically a buyer will need a loan contingency when making an offer so that they can “get your ducks in a row” prior to putting their deposit on the line with the seller.

Platinum Approval
Created to combat the recent lack of inventory and the resulting stiff competition facing many buyers, o2 Mortgage offers the Platinum Approval, which not only an in-person pre-approval takes place to guide clients through options and determine their level of affordability, but also consists of having their file put in front of an underwriter as if the buyer were already in contract. This allows buyers to confidently make offers without a loan contingency. This makes their offers more competitive and enables them to get into contract on the house they fall in love with.

Purchasing a property can be complicated. We have designed our approach to loans so that we can be your partner in the process. When you are ready to make the leap into the homeownership market, let us help you with your approval.