Seller credits for closing costs are few and far between in this hyper-competitive market; merely requesting them in fact is often a deal-killer.
But – we like to remind Realtors and borrowers alike that lender credits for closing costs remain a viable option for cash-strapped buyers. There are a few major caveats, however, when considering a lender credit.
MAJOR CAVEATS
First – buyers will get a higher rate if they want a lender credit. On average, a 1/4% increase in rate will allow a lender to offer about a 1% (of loan amount) credit for closing costs.
Assume for example that a buyer has a $500,000 loan. If she bumps her rate from 4.375% to 4.625%, she might get a $5,000 credit for closing costs.
But her payment will also increase by $74 per month. That is a lot of money over the life of the loan.
But – that borrower can also refinance in six months, making it very unlikely that she will keep the loan long enough to offset the benefit of the credit.
Second – we need to know about the need for a lender credit upfront, before we lock in the rate. This is especially the case with fast closes.
Lender credits require us to increase the rate to pay for them, as mentioned above. And if we have to increase the rate, we need underwriter approval, new disclosures and additional wait-times (several days at best).
Realtors and buyers sometimes request credits from us at the 11th hour when there is no time to re-disclose, putting us in a very tough position b/c we, as lenders, operate at much, much thinner margins than Realtors do.
If we have to offer lender credits without raising the rate, we often end up making little to no money for our efforts.
Jay Voorhees at (925) 855-4491 Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646
