What are lender credits?
Not everyone has the ability to pay the closing costs. If you are in the position where you are purchasing a home, but are not able to pay the upfront closing costs, you might want to consider lender credits. Lender credits are money given to you from your lender to help cover all of part of your closing costs associated with your home purchase. This can be upwards of several thousand dollars in credit. Afterward, this credit is applied to your mortgage. Before choosing to use this option, consider what choosing a lender credit may do to your mortgage.
What’s the cost to you?
This may seem too good to be true. However, you aren’t receiving free money. When accepting lender credits, mortgage options come with a higher interest rate. Your interest rate may increase slowly, however, it will build up over time. When a borrower receives a lender credit, this means that while they are not paying for closing costs up front, they will pay for them eventually. A lender who gives a borrower a credit for their closing costs will also require a slightly higher interest rate. The higher interest rate ensures that the borrower will pay the lender back during the life of the loan.
Why are lender credits beneficial to you?
Lenders credits are beneficial for a variety of reasons. Firstly, lender credits can help you to stretch your budget. If after your down payment and all costs associated with the purchase of your home has left you with an empty wallet, a lender credit can help. Additionally, if you don’t plan on staying in your home for a long time, a lender credit can help. The interest rate increase you incur won’t make a difference in the short run and your loan will have little to no fees.