If you’re shopping for a home loan and looking for ways to reduce your out-of-pocket expenses at closing, a lender credit may help. It’s a tool lenders use to offset some or all of your upfront costs — but it comes with trade-offs.
At BIF Mortgage, we help you understand whether a lender credit makes sense for your loan scenario.
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What Is a Lender Credit?
A lender credit is when your mortgage lender covers part of your closing costs in exchange for a slightly higher interest rate.
Instead of paying all fees out of pocket at the closing table, the lender builds some of those costs into the rate. This can help reduce or eliminate your upfront expenses.
Example:
Let’s say your closing costs are $6,000. A lender may offer to cover $4,000 of that with a lender credit, but you’d accept a higher rate in return — maybe 6.625% instead of 6.375%.
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What Closing Costs Can a Lender Credit Cover?
Lender credits may cover:
- Appraisal fees
- Title insurance
- Origination fees
- Recording fees
- Other lender-charged services
Note: It typically won’t cover prepaid items like property taxes or homeowner’s insurance.
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What Are the Pros and Cons of a Lender Credit?
Benefits of a Lender Credit
- Reduce or eliminate closing costs
- Keep more cash on hand for moving or home repairs
- Helpful for first-time buyers or low-cash situations
Considerations Before Accepting
- You’ll likely receive a slightly higher interest rate
- Over time, the higher monthly payment may cost more than the savings upfront
- May not be ideal if you plan to stay in the home long term
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Is a Lender Credit Right for You?
A lender credit can make sense if:
- You’re short on cash for closing
- You plan to refinance or sell within a few years
- You want to preserve cash for renovations, savings, or emergencies
At BIF Mortgage, we’ll help you compare scenarios — with and without lender credit — so you can make an informed decision.
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Lender Credit vs Seller Credit
A lender credit comes from the mortgage company, while a seller credit is negotiated during your purchase agreement. In many cases, you may use both to reduce total closing costs — but each has its own rules.
📖 Learn more about closing costs from this NerdWallet guide
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Final Thoughts
Lender credits are a great option when you want to reduce upfront costs — but it’s important to understand how they affect your interest rate and total loan costs. At BIF Mortgage, we walk you through your options, so you can choose the right structure for your goals.
Have questions about lender credits or how to apply them to your mortgage? Contact our team or apply now to get started.