A lender credit is money the lender puts toward your closing costs in exchange for a slightly higher interest rate. It’s the reverse of paying points. Credits reduce the cash you need at closing, which helps when savings are tight or when you expect to sell or refinance within a few years. Over the long run, the higher rate costs more.
How it works
A lender might offer 6.5% with no credit, or 6.75% with a credit of 1% of the loan. On a $350,000 loan, that’s a $3,500 credit toward closing costs, and a payment about $58 a month higher. After about 60 months, the higher payments add up to more than the credit.
When credits make sense
- You need to reduce your cash to close.
- You expect to sell or refinance within a few years.
- Rates are high and you hope to refinance if they fall.
When to skip them
- You’ll keep the loan for many years.
- You have enough cash for closing costs and reserves.
Rules to know
- Credits can only cover actual closing costs and prepaids, not your down payment.
- They appear on your Loan Estimate in Section J, as a negative number.
- Seller credits and lender credits can be combined, within limits; see getting the seller to pay closing costs.
Compare options side by side
Ask each lender for its rate with no points, with a credit, and with points, then compare with compare mortgage offers. Estimate your closing costs first with the closing cost estimator so you don’t take a bigger credit than you can use.
Common questions
What is a lender credit?
Money from the lender toward your closing costs in exchange for a higher interest rate.
Are lender credits worth it?
They help if you need less cash at closing or expect to sell or refinance within a few years.
Can a lender credit pay my down payment?
No. Credits can only cover closing costs and prepaid items.
Updated October 2026. Educational content. OfferBacked is not currently a lender and doesn’t issue pre-approvals or loans.