Lender Credit
Money the lender contributes toward the borrower's closing costs in exchange for a higher interest rate. The mirror image of paying discount points — you trade a higher rate for lower upfront cash.
A lender credit is the lender paying part (or all) of your closing costs, funded by giving you a rate above par. It's the opposite of a rate buydown: instead of paying points to lower your rate, you accept a higher rate so the lender rebates cash toward your fees.
Why investors use it
The core trade is cash now vs. interest over time. A lender credit reduces the money you bring to closing — useful when an investor is stretched on reserves, wants to keep dry powder for the next deal, or plans to refinance or sell soon and won't hold the higher rate long enough for it to matter.
A worked example
An investor has $8,000 in closing costs on a $300,000 DSCR loan. The par rate is 8.0%.
Option A — at par: 8.00%, pay $8,000 costs out of pocket
Option B — credit: 8.50%, lender credits $6,000
→ only $2,000 cash needed at closing
Option B saves $6,000 today but raises the monthly payment. If the investor plans to refinance in 18 months, the small extra interest over that window is far less than $6,000 — the credit wins. A long-term holder would likely prefer the lower rate.
The breakeven
Divide the credit by the extra monthly cost of the higher rate. If $6,000 credit costs you ~$110/month more, breakeven is about 55 months. Hold past that and the credit cost you money; sell or refinance before it and you came out ahead.
How it's used in investor lending
Lender credits matter most for short-hold strategies — a BRRRR refinance you'll redo, a value-add play with a planned refinance takeout, or any deal where preserving cash beats minimizing rate. They also make 'no-cost' loans possible: the rate is simply set high enough that the credit absorbs all fees. Always check whether a prepayment penalty applies, since selling early is the whole point of taking a credit.
This is general information, not financial advice.
Frequently asked questions
Is a lender credit free money?
No — you pay for it through a higher interest rate over the life of the loan. It's a trade: less cash at closing in exchange for higher monthly payments. Whether it's worth it depends on how long you hold the loan relative to the breakeven point.
When does a lender credit make sense for an investor?
When you're short on closing cash, want to preserve reserves for another deal, or plan to sell or refinance before the higher rate erodes the upfront savings. Short-hold strategies like BRRRR refinances or value-add flips are the classic fit.
Can a lender credit cover all my closing costs?
Often yes — that's how a 'no-cost' loan works. The rate is set high enough above par that the credit absorbs all lender and third-party fees. You pay for it in the rate, not at the closing table.