Home buyers often want to know what they can expect to pay in USDA closing costs when obtaining an RD loan. Generally speaking, for a home purchase buyers can expect to pay 3 -6% of the sales price for closing costs and pre-paid tax/insurance escrow.
In most states, the seller will have “customary” closing costs that they will pay and the home buyer will have their customary costs. It’s important to note, this does change from state to state and certain closing costs are not required to be paid by any given party.
One nice benefit of a USDA mortgage is the flexibility it allows regarding closing costs. First, the sellers are permitted to give credit (concessions) for
the home buyer’s closing costs. USDA Rural Housing will allow the home seller to pay up to 6% of the buyer’s closing costs. These USDA closing costs and escrows can be negotiated into your purchase contract and paid by the seller as part of the deal.
In certain cases, the seller may not want to pay any closing costs for the buyer. Maybe the home being sold is a short sale, REO or bank-owned. In these cases, USDA will permit a second option for the home buyer who wants to close with minimum out-of-pocket money.
The second option for closing costs involves including the costs in the cost into your new loan, basically financing the closing costs. This option has nothing to do with the home seller. USDA will permit any pre-approved buyer to roll in their closing costs into their loan if the home’s appraised value supports the increase. Your new home must appraise high enough to use this option.
Example: Let’s say you purchase a home for $150,000 – 100% USDA financing.
Home purchase price – $150,000
Closing costs needed from the buyer to close – $5,500
Appraised value – $156,000
In this example, it would be ok to roll in all of your $5,500 USDA closing costs into the new loan since the home appraisal supports it. Your total loan amount would be $155,500 plus the 1.0% USDA guarantee fee. Note: the 1.0% USDA guarantee fee is always allowed to be included in the buyer’s loan regardless of how high the appraisal is. This is great, especially for first time home buyers that want to purchase a home but have limited savings for closing costs, etc.
Now you have your USDA contract fully approved and closing costs are taken care of as well. What other closing expense should the home buyer expect to pay? Generally, you will be required to pay an earnest money “good faith” deposit when you write your purchase contract. This amount is usually around $1,500- $2,500 depending on the sales price and state.
This deposit money will be placed into a separate escrow account by the closing agent and applied. Appraisal and home inspection fees will also be paid in advance – these costs are generally $550 for appraisal and $500 for the home inspection. Home inspections are not always required, but always a good idea.
Depending on the seller’s concessions you negotiate, or the appraisal value, you can often receive the advance money you paid (deposit on contract, appraisal fee, home inspection fee) back at closing!
If you have questions about this topic or the proper way to structure your purchase contract, please connect with us by calling ph: 800-743-7556 or just submit the Quick Contact Form found on this page.
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