How to Save on Closing Costs With Lender's Credits

5 MIN. READ

Key takeaway:

Some lenders offer credits to help you pay for closing costs (which can amount to 2% to 5% of your home loan amount).
Requirements vary from one lender to another, but having a strong financial profile can help you qualify for a lender’s credit.
Power Financial Credit Union offers a lender’s credit of up to 2% of the loan amount to help you pay for closing costs.

If you have found your dream home, but the closing cost estimate is much higher than you thought, there is a solution that can help you purchase without draining your savings or postponing homeownership: lenders’ credits.

At PFCU, many members use this helpful financial tool to move into their new homes without emptying their bank accounts.

Let's take a closer look at how lenders' credits work and how to save on closing costs.

How Much Are Closing Costs?

When closing on a home, you should expect to spend between 2% and 6% of the loan’s value in closing costs.

This can seem high, but expenses will quickly add up, including your lender's origination fee, appraisal and inspection fees, escrow payments, and title work.

It’s not uncommon for buyers to find themselves cash-poor immediately after buying a home, and in some cases, covering all these closing costs can mean having to cut back a little on your down payment.

PFCU mortgage expert Nathan O’Gorman explains South Florida buyers' unique challenges: “Factors like spiking hazard insurance rates are driving closing costs up. Plus, due diligence is a lot more thorough when buying some property types like condos, which translates into higher inspection fees for buyers.”

What’s a Lender’s Credit?

To help out with closing costs, some lenders offer a credit. It’s essentially money the lender gives you at closing to help cover all or part of your closing costs.

In exchange for offering a credit, your lender will slightly increase the interest rate on your mortgage. Check your loan estimate or closing disclosure to better understand how a lender’s credit impacts your interest rate and monthly mortgage payments.

That said, it is usually worth taking advantage of lender credits to help offset high closing costs. If you’re worried about paying more interest, remember that you can refinance your mortgage down the road.

What Can You Use Your Lender’s Credit On?

It depends: Each lender has a different program, and their rules might vary. It’s a good idea to talk to a representative and double-check what closing cost assistance is available and what you can spend the money on.

Typically, you’ll have some flexibility and can use your lender’s credit to cover eligible closing costs. You can also usually spend the credit on things the lender requires, such as the appraisal, or on common closing costs like title work.

In most cases, you won’t be able to use the credit to buy points and secure a lower interest rate on your mortgage.

Keep in mind that lenders’ credits are for closing costs only, which means you can’t use them to boost your down payment directly (but qualifying for a lender’s credit can free up some cash for a slightly larger down payment).

Can Everyone Get a Lender’s Credit?

Because each lender has different policies regarding credit, the requirements vary.

Some programs are condition-based, which means you can get a credit if you buy your first home or meet some income requirements. In most cases, lenders will only issue a credit if you’re financing your primary residence.

Generally speaking, you’re more likely to qualify for a lender’s credit if you have a strong financial profile (similarly to getting a better rate on your mortgage!). A good credit score, a high down payment, and a low debt-to-income ratio can help.

How Do I Get a Lender’s Credit?

When comparing mortgage rates, determine if the lender offers a credit, for how much, and how much it will affect your home loan rate. Don’t hesitate to contact a representative and ask about credits!

Not all lenders offer one, and you meet the requirements of all credit programs. It pays to shop around and look for the best combination of competitive mortgage rates and the lender’s credit.

Remember: The stronger your financial profile is, the more likely you will qualify for a lender’s credit. O’Gorman has a great tip for strengthening your mortgage application: “At PFCU, many first-time buyers come in with relatives willing to act as co-borrowers or co-signers. We’re able to offer these buyers a better deal thanks to the added security a co-borrower or co-signer represents.”

Power Financial Credit Union Offers a 2% Lender’s Credit

Power Financial Credit Union has a helpful offer that makes home ownership just a little more accessible.

You can qualify for a credit of up to 2% of your loan amount, and use it to pay for eligible closing costs.

To get this credit, you should finance a primary residence with a fixed-rate or jumbo mortgage.

Are There Other Ways to Save on Closing Costs?

A lender’s credit might not cover all your closing costs. It doesn’t mean you should drain your savings or postpone homeownership.

If you’re wondering how to save on closing costs, consider these strategies:

Good news for South Florida buyers: The local real estate market favors buyers right now! This buyer's market means you might be able to negotiate and get sellers to cover a part of the closing costs, besides bringing down the purchasing price a little.
Take the time to compare lenders. Credit unions often have lower origination fees than traditional banks.
Relatives and friends can help and give you money toward closing costs. Make sure to document the gift with a gift letter.

O’Gorman also advises: “What buyers often don’t know is that they don’t need a huge down payment. If covering closing costs is tough, consider cutting back on your down payment so you’re not left strapped for cash.”

How to Save on Closing Costs With Power Financial Credit Union

Don’t let high closing costs stand between you and your dream home. Lender’s credits are a great way to reduce those upfront costs and get through closing without running low on cash.

At Power Financial Credit Union, we're committed to making homeownership more accessible with a lender's credit program of up to 2% of the loan amount. But that’s not the only perk of financing your home with PFCU: We offer competitive mortgage rates, a great program for first-time buyers with no PMI or down payment, and a simple application process.

Our mortgage loan exerts are here to answer your questions. You can also learn more about our lender’s credit and mortgage products here.