How Can You Get Lender Credits To Lower Closing Costs?

Certified Mortgage Advisor
NMLS 1701021
April 19, 2019

Q&A: How can you get lender credits to lower closing costs?

So lender credits are basically all about your interest rate. So think about it like golf. So when you play golf, if you hit par for a course, it's almost like a zero score, right? You hit par so you hit right on where you're supposed to be hitting.

Par rate

Interest rates are given in the same way they're given at what's called a Par Rate based on the risk of the loan. So for instance, let's say that we had a loan and you were given a part rate of 4%. So it means because of the risk of the loan, whether it was super risky or not super risky, it was given a 4% rate for $0 in cost.

So what you could do is you could actually buy down the rate, meaning that if you paid more money, you could get a lower rate. And inversely you could increase the rate and receive money at closing. That's called a Lender Credit.

Lender credit

So Lender Credit is where you're actually gonna take a higher interest rate and receive money towards closing costs. This can be a really great option if you need some money to pay down closing costs. So you're basically getting money upfront, but you're gonna end up paying a higher rate so you can find what that break-even point is by figuring out how much money are you gonna get back versus how much extra money it costs per month divide those by each other. That's gonna give you your break-even point.

So you know that if you find a break-even point for three years down the road, then you know that decision made sense. If you're staying in the home for three years or refinancing before three years is up. So that should give you a good idea of lender credits. They can be a great option, but just know you could forego the lender credit, and receive a lower rate.

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