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Utilizing Lender Credits to Your Buyers’ Advantage

November 10, 2020


Most buyers know they need to save money for the down payment on a home, but they often overlook funds for closings costs. The most common solution is to request closing cost funds from the seller, but in a competitive market with multiple offers, requesting closing cost funds from the seller could negatively affect the outcome of the offer. As an alternative, lender credits are a lesser-known option that can help both the buyer—and the seller—avoid paying closing costs up front.

With a lender credit, the lender covers some or all of the buyer’s closing costs the day of closing in exchange for an increase to the interest rate on the buyer’s loan. While increasing the interest rate may seem counter to good financial management, a slight increase in rate may have a minimal impact on the monthly payment. With rates at historical lows, your client could save thousands at the closing table. This makes lender credits a great option for buyers on a tight budget or for those who want to allocate more funds to the down payment.

To help illustrate how lender credits work, let’s look at a potential scenario. Let’s say a buyer’s loan amount is $200,000 on a 30-year term with an interest rate of 2.625%. The lender may offer to increase the rate to 2.875%—increasing the monthly principle and interest payment by just $27—while providing the buyer with approximately $2,000 in credits for closing costs. If the buyer instead chose to pay the $2,000 in closing costs out of pocket at closing, it would take them approximately six years of payments at the lower rate to recoup what they would have saved up-front by utilizing the lender credit.

The amount of the lender credit and the associated rate increase will vary and is determined by several factors, such as loan type, loan amount, credit score and loan-to-value (LTV) ratio. On average, it can take approximately five to seven years to break even when utilizing lender credits, so this option may be ideal for buyers that plan to live in the home for a short period or plan to refinance within a few years. Ultimately, it’s important for the buyer to consult with the lender to determine the best option for their financial situation.

For more information about utilizing lender credits to your buyer’s advantage, contact your Ameris Bank mortgage banker.


By: Marlene Sheard

Marlene is the mortgage marketing representative for Ameris Bank and previous sales and marketing president for her local Home Builders Association. She enjoys sharing her experiences for the buying, selling and financing of homes.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.