Back for another Mortgage Minute Series, Academy Mortgage is on hand to talk about the many incentives buyers can receive when they use their builder’s preferred lender. When choosing Academy Mortgage as a preferred lender, buyers will receive $5,000 in seller paid closing costs. Travis Evans, a licensed Mortgage Originator with Academy Mortgage, explains how this can be used toward a mortgage payment or closing costs.
One great way to use the seller paid closing costs is to purchase discount points. Discount points are great for buyers who are planning to stay in their new home for an extended period of time. When buyers “pay for points,” they can lower their interest rate and monthly payment over the life of their loan. One point costs 1 percent of the loan amount, and by purchasing this point, your interest rate can be reduced by about 0.25 percent.
For example, if you are purchasing a home for $100,000, one point will cost $1,000 upfront. If you were quoted an interest rate of 4 percent, then the purchased point will reduce your interest rate to about 3.75 percent. The discount point does not reduce the amount borrowed, but simply helps lowers the interest rate and monthly payment amount. Additionally, points purchased can be tax deductable.
Another great way to use seller paid closing costs is to avoid private mortgage insurance. If you are putting less than 20 percent down on your new Atlanta home, PMI can typically be paid in a couple of ways:
- By combining it into the interest rate
- By paying one lump sum at closing
You can also use the $5,000 seller paid closing costs and pay PMI all at one time. This will eliminate PMI for the lifetime of a loan.