The Truth About Mortgage Lender Credits And How To Avoid The Trap

Buying a home is exciting, but when a mortgage lender offers you a credit to cover closing costs, you need to be careful because it is often a trap. As a mortgage professional with twenty years of experience running one of the top lending teams in America, I have seen every trick in the book. While my team at 786-933-2077 focuses on complete transparency, many lenders play games with your money.

The Reality of Free Money

It often starts when a real estate agent suggests using their preferred lender because they will give you one thousand, two thousand, three thousand, or even five thousand dollars towards your closing costs. They will tell you it is because they love working together. But mortgage lenders are not handing out thousands of dollars out of the goodness of their hearts. Let us look at the real deal of how mortgage pricing actually works, because those credits are almost always paid for by you.

Understanding the Rate Sheet Math

Every day, mortgage lenders look at a rate sheet to price your loan. Let us use a hypothetical example where the current par rate is six and a half percent. Par rate means there are zero discount points charged to you, and there is also zero credit given back. If you want a lower rate, you pay discount points to buy down that rate.

One discount point equals one percent of your loan amount in upfront cost. For a four hundred thousand dollar loan, one point is four thousand dollars, and two points is eight thousand dollars. To go from six and a half down to six percent in our example might cost you two points, or eight thousand dollars.

How Lender Credits Really Work

Just as you can pay to buy down your interest rate, a lender can offer you a higher rate and give you a credit. When a lender acts like they are giving you a credit out of their pure generosity, they are usually just pricing your loan at a higher rate.

If a lender offers you an eight thousand dollar credit on that same four hundred thousand dollar loan, they might raise your rate from six and a half percent to seven and a quarter percent. Because that higher rate generates extra premium on the rate sheet, they hand it to you as a credit. You get upfront cash but pay a much higher rate over the life of the loan.

The Best Way to Catch Them

To catch this trap, do not believe a word they say without proof. Ask to see their daily rate sheet. If they are being honest, they will show you. If someone asks my team to do this, we will easily take a picture of our screen with an iPhone and text it to you.

If they refuse to show you the rate sheet, make excuses, or say their company does not allow it, that is a huge red flag. My company is painfully strict with compliance, and I have never gotten in trouble for showing a rate sheet. If they deflect, they are hiding the markup.

The Agent Marketing Loophole

This setup is fueled by deceptive industry marketing. Major national lenders partner with real estate brokerages, pay for their marketing, and have agents send out letters to clients. These letters claim that because of their special relationship, the lender is giving you a two thousand dollar credit because they really like Becky.

In reality, the lender wrote the letter, the agent may have never worked with them, and the lender charges high fees to cover the marketing costs they paid. There is no special magic going on; you are just getting a higher interest rate.

The Bottom Line

Whether you work with my team or someone else, we want you to get an honest deal. Never accept a credit blindly without asking to see the rate sheet first. If you want us to review an offer to see if you are getting snowed, call my team at 786-933-2077.