Home Loans 101: What are Discount Points?
Discount points are a form of prepaid interest or fee that homebuyers can choose to pay at the closing of a mortgage to reduce their long-term interest rates. By paying these points upfront, buyers can effectively lower the interest rate on their monthly mortgage payments.
Each discount point typically costs 1% of the total loan amount and can reduce the interest rate by approximately 0.25%, although the exact reduction can vary depending on the lender and the current market conditions.
This means that if you take out a $200,000 mortgage, one discount point would cost $2,000. In exchange for this upfront payment, your monthly payments would be lower for the life of the loan, potentially saving you a significant amount of money over the years.
This strategy can be particularly beneficial for those who plan to stay in their home for an extended period, as the long-term interest savings can outweigh the initial cost of the discount points.
Essentially, by paying more at the beginning of your mortgage term, you can enjoy reduced monthly payments and overall interest costs, leading to substantial savings over time.
✅ Benefits of Contract Loan Processing for VA Loans
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Specialized VA Knowledge
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VA loans have unique requirements (COE, residual income, funding fee calculations, appraisal requirements).
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A contract processor experienced in VA loans can spot potential issues early and streamline the process.
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Cost Savings for Lenders
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No need to hire full-time staff; processors are paid per file.
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Helps smaller brokerages or lenders manage fluctuating loan volumes without carrying extra payroll.
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Faster Turn Times
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Contract processors often work remotely and are paid per closed file, so they’re incentivized to move loans quickly.
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They can push COE requests, follow up on VA appraisals, and ensure VA-specific forms (26-1880, 26-8923) are completed on time.
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Compliance & Accuracy
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VA has strict guidelines (e.g., allowable fees, seller concessions, and veteran protections).
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A skilled processor reduces risk of compliance errors that could lead to loan buybacks or funding delays.
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Scalability
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During high volume seasons (e.g., rate drops, PCS military moves), lenders can bring on extra processors quickly without long-term HR commitments.
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Reduced Loan Officer Burden
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Lets LOs focus on originating, networking, and serving clients while the processor handles gathering DD-214s, income docs, pest inspection reports (if required), and underwriting conditions.
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Improved Borrower Experience
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Veterans and active-duty borrowers often value clear communication and speed.
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A processor who knows the VA process can anticipate documentation needs and prevent last-minute surprises.
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👉 In short: Contract processors help lenders stay lean, compliant, and efficient, while ensuring veterans have a smoother experience.
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