Have you seen lenders on social media advertise something like, “Work with me, and I’ll give you $2,500 in lender credits!”? You might think, “Wow, that’s a great deal! But wait… is there a catch?” Sometimes these lender credits are too good to be true… but not always! In the video above, your #MortgageBFF Autumn explains what lender credits are, what questions to ask when offered these credits, and how Homespire does it differently.
First of all, let’s define what a lender credit is. A lender credit is when the lender agrees to cover part or all of a borrower’s closing costs. In exchange, the borrower pays a higher interest rate. Lender credits can be a smart way to avoid the upfront cost of buying a house — or refinancing. Put more simply, if a buyer needs help paying closing costs, the lender may offer a lender credit to help with those costs but will compensate for that by increasing the interest rate. It’s a trade-off.
Who is eligible? Technically, lender credits are available to all borrowers. However, keep in mind that a lender credit will increase your interest rate and your rate can’t be so high that it affects your eligibility to qualify for the loan. But your Loan Officer will be able to work with you to find that delicate balance.
Is there a catch? Some lenders offer lender credits, but then go and charge the client additional origination fees. For example, a preferred lender may say that they will give you a $2,500 lender credit on a $200,000 loan, then tack on a 1% origination fee ($2,000) to be able to keep the rate competitive. To the buyer, this looks like a low rate plus a $2,500 credit. But the reality is that they’re only receiving a $500 credit because they’re also paying the additional origination fee. Honestly, it’s all smoke and mirrors and the buyer doesn’t realize it.
How does Homespire do it differently? Homespire does a true rate-related credit and does not add additional origination fees to the loan terms. Therefore, if we say that we will give you a $2,500 lender credit, that is exactly what you get – the tradeoff is a higher interest rate, but zero extra fees. Total transparency – it’s the only way to do good business.
If you have any questions about lender credits or you’re thinking about buying a home and want to see how much you could qualify for, visit https://www.homespiremortgage.com/loan-officer-search/ to find a Homespire Loan Officer near you.