What are lender credits and how do they work?
See how reduced upfront costs can be exchanged for a different interest-rate structure.
A lender credit is an amount the lender applies toward certain closing costs, commonly in exchange for a higher interest rate than an option with fewer or no credits.
It can reduce cash needed upfront, but it is not free money because the pricing tradeoff can increase payment or interest over time.
Compare the total offer and your expected timeline, not only the credit amount.
Why a lender offers credits
Mortgage pricing can be structured with more cost upfront for a lower rate or less cost upfront for a higher rate. A lender credit sits on the lower-upfront-cost side of that tradeoff.
Compare the same scenario
Ask for options on the same loan amount, type and lock assumptions. Compare the rate, APR, monthly payment, lender charges, credit and cash to close.
Your timeline matters
A credit may help a buyer preserve cash today, while the higher associated rate may cost more over a longer period. Selling or refinancing earlier changes the comparison.
Use the Loan Estimate
The standardized form shows lender credits and other costs. Read it alongside the Loan Estimates from other lenders and ask for an explanation of any changed terms.
Compare upfront savings with long-term cost
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