Getting Closing Cost Covered? A Lender Can Do That.

When home buyers think about buying their first home, many of them don’t realize that in addition to the down payment, additional funds are needed towards “closing costs.”  These costs go towards paying various items to make sure the deal closes.  This includes the Title Company, escrow/settlement company, insurance, prorated property tax and interest, and if the down payment is less than 20%, mortgage insurance and impound deposits for property tax and insurance.  All of this adds up to thousands of dollars.

But what most people don’t realize is that some lenders will give you what is called a “Lender Credit.”  This credit is money that can go towards your closing costs, in exchange for a slightly higher interest rate.  Now, although this may seem scary at the thought of a higher interest rate, it can actually be a good thing and allow you to purchase a home.  Here are three things to keep in mind with lender credits:

1. It is less cash out of your pocket today: If you are short on cash, but want to buy a place, then having the lender credit can help in making this a reality. In some cases, the lender can provide enough cash to cover most or all of your closing costs.  That is real money today that you get to keep.
2. Even with interest rates increasing, it could still be cheaper than rent: With your bills all in, it could be the same or still less than what you are paying in rent.  Therefore, it can still be a worthwhile investment.
3. If you pay for closing costs out of pocket they are after tax dollars so the gross amount from your hard work can be a much larger amount.
4. Refinancing is still an option later on: Many lenders will charge you very little if anything to refinance your home.  Later on, if the property value has increased, you can refinance and possibly get a lower rate.  Therefore, the higher rate may sting for a little bit, but if means you save big bucks, then it can be worth it.

Receiving a lender credit can be a huge tool in your toolbox when it comes to buying a home.  It keeps money today in your pocket, and gets you into the home of your dreams. I am writing from experience as benefited from all of the steps above when I purchased my personal residence.