USDA Loan Closing Costs and Fees
Millions of Americans have benefitted from the low cost perks of the USDA home loan program. USDA home loans are zero-down, and come with some of the lowest average interest rates in the market. Still, it’s important to thoroughly review the costs of any home loan so you know what to expect on closing day.
Generally, USDA loan closing costs run between 3% to 6% of the home’s purchase price. The total cost of the loan and cash needed at closing can vary widely from one borrower to the next depending on your credit, the lender and the property. Working with an experienced USDA lender can help you to avoid surprises.
Talk to one of our USDA home loan specialists to learn more.
Here’s what you need to know about the potential closing costs you might expect with your USDA loan:
Two Types of USDA Loan Closing Costs
With USDA loans, your closing costs will fall into one of two categories: your mortgage and title-related fees and the expenses associated with your property.
Let’s look at both types of USDA home loan closing costs more in-depth.
USDA Loan-Related Costs
First up are your loan and title costs. These vary depending on your mortgage lender, credit score, location, and purchase price, but here’s a look at some fees you may owe:
- Origination fee: This is charged by your lender for originating the loan. Estimated cost: 1% of your loan amount
- Processing/underwriting fee: Another lender-side fee, this one's for processing and administering your loan. Estimated cost: $500 to $1,000
- Credit report: To assess your risk as a borrower, your lender will pull your credit report when you apply for the loan. Estimated cost: Up to $100 per application
- Discount points: You might opt to buy “points” to lower your interest rate. Estimated cost: 1% of your loan amount
- Appraisal fee: Your lender will require your home’s value to be appraised before approving your loan. Estimated cost: $600 to $750
- Title search: This is a deep dive into the property’s title to ensure there are no legal or ownership issues outstanding. Estimated cost: $500 to $1,000
- Prepaid interest: You’ll need to pay interest on your loan for each day between your closing date and the end of the month. Estimated cost: Depends on your interest rate and loan amount
There may be other fees too, so make sure your lender breaks down your estimated costs after you are under contract on a home.
Expenses Associated with the Property
You will also have costs associated with the home you’re purchasing. These include things like:
- Prepaid property taxes: As you did with your loan interest, you may also need to prepay part of your property taxes. You might also need to pay a portion into your escrow account for future bills. Estimated cost: About 1% of the property value, though it varies
- Home insurance premiums: Most lenders require you to pay for at least the first year’s home insurance premium up front. Again, you may need to pay an additional amount into your escrow account as well. Estimated cost: $800 to $1,500 per year
- Recording fees: Once you close on the loan, your deed will need to be recorded with the county. Estimated cost: $300
- HOA fees: If your property is located in a community governed by an HOA, you’ll need to pay your HOA dues — or a prorated part of them — in most cases. Estimated cost: Varies
- Home warranty fees: Many borrowers choose to purchase a home warranty when they buy a house. These fees are paid at closing as well. Estimated cost: $300 to $500
Your property-related expenses will depend on where your home is located, the tax rates in your area, and your insurance company. Be sure to shop around for your policy, as it could save you valuable cash.
How To Pay for USDA Closing Costs
Fortunately, not all your closing costs have to come out of pocket. In fact, there are several other methods you can explore with a USDA loan.
Borrowers can pay for USDA closing costs in the following ways:
- Negotiate a seller credit: Sellers can contribute up to 6 percent of the home’s purchase price toward your closing costs. So, if you’re buying a home for $200,000, they could pitch in as much as $12,000.
- Roll costs into your loan: While less common, you might also be able to roll closing costs into your loan. The home would need to appraise for a higher value than the purchase price for this to work. You would pay these costs over time with interest rather than at closing.
- Ask about lender credits: Your lender can also offer credits toward closing or waive your fees entirely. This usually comes with a higher interest rate, which also means a higher monthly payment and more interest paid long-term.
- Use gift funds: These can come from a family member, loved one, or even your employer.
- Leverage an assistance program*: Depending on your financial need, you may be able to cover your USDA closing costs via an assistance program. Many state agencies, cities, and non-profits offer down payment and closing cost assistance programs; some are loans, which are forgivable if you live in the home for a certain amount of time, while others are grant-based, meaning they don’t need to be repaid at all.
*Neighbors Bank does not participate in any down payment assistance programs.
USDA Loan Closing Cost FAQs
Have a question we didn’t answer here? Ask a Neighbors Bank USDA loan specialist today! We’re happy to answer any questions you have throughout the process!
Can a seller pay closing costs on a USDA loan?
Sellers can contribute up to 6% of the home’s purchase price toward your closing costs in what is called a “seller credit.” This is negotiated and must be specified in the contract.
Can you finance closing costs into your USDA home loan?
Yes, there are a couple approaches to this. One is to essentially build the costs into your purchase offer and ask for a seller credit. While far less common, in some cases it might be possible to roll the closing costs on top of the loan. If the home appraises for a higher value than the purchase price, your lender could increase your loan amount to cover your closing costs.
Are USDA loans hard to close?
It’s the lender’s job to make the entire home loan process smooth and stress-free. Mortgages are complex, but experienced USDA lenders will make closing look easy!
Are You Eligible for a USDA Loan?
To be eligible for a USDA home loan, your total household income cannot exceed the local USDA income limits.
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