Are closing costs included with a USDA loan?
How Can You Finance Closing Costs With A USDA Loan?
USDA Rural Home loans are sought after by homebuyers for their flexibility and one well known feature is the ability to finance out of pocket costs.
However additional guidelines do apply and today’s video tip will cover what you need to know to see how closing costs can be included with a USDA loan.
Before we get started, don’t forget to download our USDA Blueprint for Success with the link below. This free guide is designed to break down the process step by step and is a great educational resource for both Realtors and homebuyers alike.
So, are you able to include closing costs with a USDA loan?
As a starting point, USDA loans allow for No Down Payment (100% financing), but that should not be confused with No Money Out-of-Pocket .
Customarily, a buyer will have 2 types of out-of-pocket expenses:
- Down Payment, and
- Settlement charges (also known as closing costs and pre-paid items)
USDA loans eliminate the need for a down payment, but the homebuyer is still responsible for their respective costs. This can be either paid by using their own funds, eligible gift funds, negotiated for the seller to pay through the sales contract, or in the case of a USDA home loan, the possibility to finance those costs into the loan.
So, you can finance closing costs with a USDA loan, but only in cases when the appraised value is HIGHER than the agreed upon sales prices
Here are examples of what settlement charges can be financed into a USDA loan:
- Closing Costs such as Title Charges, Loan Costs, Survey, Recording Fees, etc.
- Pre-Paid Items such as your Escrow Accounts, Homeowner’s Insurance Premium, and Pre-paid Interest.
Key points to remember are that the appraised value must be higher than the sales price for this feature to be available. This is unique for USDA home loans, and not available under Conventional, FHA, or VA programs.
Homebuyers should be cautious if they are solely relying on financing closing costs to cover their out-of-pocket expenses, because that is determined by the final appraised value which happens after the sales contract is agreed upon. Financing closing costs should be viewed as a potential advantage, not a guarantee!
Just call or email to discuss your scenario, and let us show you the “Metroplex” difference!
(800)806-9836 Ext 280
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P.S., Don’t forget to download our USDA Blueprint for Success educational resource. This complimentary guide is designed to walk you through the USDA qualifying process step-by-step and is ideal for both homebuyers and Realtors alike.