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 brings the real estate loan up to those other investments.
Are points called names? Yes; Loan Origination Fee, Commitment Fee, Discount by different Fee, Funding Fee, etc
Who must pay the points? FHA: The buyer is usually charged with the Loan Origination Fee, the buyer or seller can pay Discount Fee.
VA: The buyer is usually charged with the Loan Origination Fee and the Funding Fee. The seller must pay the Discount Fee.
Conventional: Points can be paid by the buyer, the seller, or split between the two. Must be stated on the contract of the sale.
City/County/State/Government Sponsored Loans: as publishes by them.
Does 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 the money for home mortgages becomes scarce and more expensive. When this occurs, more points can be charged. Points balance the market. Points are not set by government regulation but by each lender individually.
On VA loans, is there anyway to lock in the number of points? Not without jeopardizing the sale. Even when a lender stipulates in writing the number of points to be charged, that guarantee states “if the interest rate is not changed by the government”. Points charged on an FHA or conventional loan are usually not changed from commitment time to settlement.
Is FHA or VA financing unfair to the seller? No, homes can sell faster because more buyers can qualify with the lower down payment requirement, lower interest rate, long-term to loans with the lowest monthly payments. Sellers receive all cash for their equity to reinvest in a new home or other investment. The purpose of equity is 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.