Buying a new home can be an exciting and challenging endeavor. Getting in your dream home can also be very costly. Not only do you need to have a down payment but you will also have to pay closing costs. When buying a home, many expenses arise and you may need to purchase furniture, remodel a kitchen, landscape the yard or any other home expense that may suddenly arise for which you will need cash on hand. Because of this, many people consider a loan with no closing costs due to a lender rebate or lender credit. Many people are not fully aware of where the money comes from for a lender credit or how the money is available to cover closing costs. This type of loan may be a great choice for many buyers but it does not come without a price. Bankrate.com discusses how lender credits work, “‘There’s two ways people achieve no-closing-cost mortgages,’ says Bob Walters, chief economist at mortgage lender Quicken Loans based in Detroit. ‘The mortgage company will flat-out waive them, which doesn’t happen that often. Or, they will present the rate (with) closing costs and if you don’t want to pay, you’ll take a slightly higher rate.’ For example, you may be offered a mortgage at a rate of 3.75 percent and pay closing costs. Or, you can take a no-closing costs mortgage at a higher 4.125 percent rate.” The lender increases the rate to ensure they get paid for originating the loan and they raise the rate and use a “lender credit” to help cover closing costs for the borrower. If you plan to be in your home for less than five years, a no-closing-cost loan using lender credits may be the way to go. If you plan to be in the home for more than five years, it may not be beneficial to take the lender credits as you will then be stuck with the higher interest rate for the life of the loan. The higher payment each month over the length of the loan will cost much more than the upfront fee, such as closing costs, when buying a home. It is a great idea to weigh all options when buying a home and to consider both immediate cash needs as well as future savings. Discuss all of your options with your lender and choose the best loan for your situation. You can always shop around with lenders and find the best deal for your home loan.