Should Home Sellers Offer This Mortgage-Lowering Incentive to Find More Buyers?

Home sellers may want to consider this option.

The real estate market has been a seller's market in recent years, but there's evidence things are changing. In fact, homes are sitting on the market for longer in some parts of the country.

High mortgage rates are a big reason why there's reduced demand for home purchases. As a seller, this can be frustrating if you want to unload your house quickly and you can't find an eager buyer. But, there's one technique you might want to consider trying.

Home sellers could offer to pay mortgage points

If you are struggling to sell your home and you think high mortgage rates may be turning buyers off, you can actually offer an incentive that would help buyers get a cheaper home loan. It's called seller-paid points.

When a buyer gets a mortgage, they are allowed to buy points, which is essentially prepaying interest. For a fee that's usually equal to 1% of the loan amount upfront, a buyer can reduce their interest rate by 0.25%.

Sellers also have the option to pay for these points for a buyer. This is called seller-paid points, because the seller would be paying the upfront cost in order to buy down the interest rate of the person who is purchasing the home.

Is this a good idea if you're trying to sell your home?

Offering seller-paid points can be a great option for a number of reasons.

For one thing, paying points has a big impact on how much a buyer can afford to spend on your home. That's because lowering the buyer's interest rate can make their monthly payment a lot more affordable. In fact, if you had a $300,000 house on the market, dropping your home to $280,000 would have about the same impact as buying down the buyer's rate by 0.75%. But reducing the buyer's rate that much would only cost you $9,000, so you'd end up about $11,000 ahead.

If you can make a buyer's monthly payment lower, you'll be able to attract a lot more buyers, and a lot more people will be qualified to purchase the property. You will also stand out from other sellers who don't offer this incentive, and you'll reduce the likelihood of a buyer not being able to close the deal since the more affordable monthly payment means the loan is less risky for mortgage lenders.

Of course, it makes sense to do this only if you actually need help attracting a qualified buyer. And whether that's the case or not will depend on many factors, including what the real estate market is doing in your area and the price range of your home. If you're selling a starter home, for example, your buyers may be more sensitive to the rate increases than if you're selling a home to financially secure, established older buyers with more monthly income.

Ultimately, you should consider this as an option if you think you may need to do so in order to sell your house quickly -- and if you have the ability to come up with the cash to pay these points for the buyer and still walk away from your home with enough to pay off your mortgage in full.