Looking at purchasing a new house soon and trying to decipher the pro / cons of a lender credit. IMO, with the high interest rates and with a strong probability of several rate cuts next year, a large lender credit for the home purchase knowing you'll probably refi within a year makes sense. Especially because the area I love has low refi taxes / fees.

Looking at a 600k house and a lender credit of around 10k. No fees go back to the lender from best I can tell. Rate would be around 7.45% vs a 6.75% rate no credit.

So what am I missing? Other than the risk rates don't go down, are there any other things to be concerned about? Questions to ask?

Thanks in advance.

The lender will recoup this when they deliver the loan at above par. What does the credit cover?

My understanding is that the lender credit can cover closing costs only. Not the loan. If that's what you're asking.

Reason I'm looking into a lender credit is the fact we are keeping our current house as a rental and can't access the equity so we are trying to minimize out of pocket costs since we want to do some small renovations prior to moving in.

Not sure what your time frame is but you might look at a HELOC to create some cash for that project and not incur any costs.

Assuming you are putting down 20% you would be saving 226 a month on payment with no lender credit. So, the 10k would be paid back in 44 months. So, yes, assuming you refi before those 44 months it would make sense to take higher rate with the credit.

But, two other thoughts The 10k actually seems like a LOT of costs for a 600k purchase. So, either you are counting pre-paids into those costs OR you might want to shop a bit to make sure you are not paying to much in costs. That way the rate would be lower even with a lender credit paying for your costs.

Second, understand that the Fed does NOT control mortgage rates but rather the world wide bond market does. For example, the 10 year treasury bond (which is the best widely available proxy for mortgage rates) was 3.624 the day before the last 50 basis point fed funds rate. The 10 year currently stands at 4.268%. and mortgage rates have gone from high 5's BEFORE the fed cut to near 7% today. This is with market already factoring in 150 basis points further cuts in the next year. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html