Lender credit

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What is a reverse mortgage lender credit?Reverse mortgage lenders are often willing to offer a lender credit to cover all or part of your closing costs. A lender credit is simply a payment to you at closing for purposes of covering closing costs such as origination, 3rd party costs, and IMIP.

It’s important to understand that lenders don’t waive or remove closing costs. They use a lender credit to offset closing costs. For example, if the total closing costs are $10,000 and you’re given a credit for $8,000, your net closing costs are $2,000.

If this example was refinance loan, then the net $2,000 would be rolled into the new loan amount. For purchases, the net $2,000 in costs would be an out-of-pocket expense along with your down payment.

You may be able to negotiate a lender credit

Depending on the lender you’re working with, the current interest rate environment, and your starting loan amount, you may be able to negotiate a credit to cover all or part of your closing costs. This is particularly true if you’re starting off with a large loan balance. Think about it: larger loans generate more interest and are more profitable for lenders. Lenders usually have more leeway to offer credits on larger loan amounts.

For example, if you’re paying off a large existing mortgage or taking a large lump sum at closing, you’re probably in a good position to negotiate.

However, if your home is free and clear and you’re allocating all the proceeds to a line of credit or term/tenure income, your starting loan balance will be relatively small. Your lender likely won’t be able to offer much of a credit because the loan won’t initially generate a lot of interest.

Regardless, if you want your lender to pay for some or all of your closing costs, you need to ask. The worst your lender can say is no, right?

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About Mike Roberts

Mike Roberts is the founder of MyHECM.com, an author, and a highly experienced veteran of the mortgage industry. When he's not working, he enjoys spending time with his family, skiing, camping, traveling, or reading a good book. Roberts is the author of The Reverse Mortgage Revealed: An Industry Insider’s Guide to the Reverse Mortgage, which is available on Amazon.