LENDER CREDIT SEALS THE DEAL
An agent we work with was able to get one of her clients into contract on Friday by taking advantage of the large lender credits we are able to offer.
It was a $600,000 FHA purchase and the buyer’s previous lender was unable to offer a lender credit, effectively killing the deal b/c the buyer barely had enough funds for a down payment let alone closing costs.
Upon learning this, the agent sent her client to us (Friday night after 6 PM, I might add 😊), and our Mortgage Analysts who were “on call” were able to quickly pre-approve them.
B/c it was FHA Financing (with large “rebates” or “yield premiums”), we were able to offer a $13,000 lender credit, and our agent-partner was able to seal the deal.
The above success story prompted me to send this reminder to always consider lender-credits when borrowers are tight on cash.
THERE ARE A FEW CAVEATS THOUGH:
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 4.75% to 5.0%, she might get a $5,000 credit for closing costs.
But her payment will also increase by $76 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 up front, 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.
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646