Is an Earnest Money Deposit Required With a USDA No Down Payment Loan?
Typically, when purchasing a home, a buyer will have two types of out-of-pocket expenses: down payment and settlement charges.
With a USDA no down payment loan, the burden of a down payment is eliminated. However, remember that no down payment is not the same as “no money out-of-pocket“, because other costs may still apply such as an earnest money deposit, appraisal fees, inspections, closing costs, and pre-paid items.
In today’s’ video I will review customary out of pocket costs which includes details on any requirements for the earnest money deposit (EMD).
Have you viewed any of our FREE USDA resources? Whether you download our USDA Blueprint for Success or our Guide to USDA Financing for New Construction your knowledge will grow about the USDA qualifying process!
What is an Earnest Money Deposit (EMD)?
Earnest money is a deposit on the house you want to buy. It is used to show sellers that you are serious about buying their home and it is a good-faith gesture towards the purchase.
USDA Loans and an Earnest Money Deposit
While no down payment USDA loans do not require an earnest money deposit, it is customary for a buyer and seller to agree upon an EMD. Plus, as part of the approval process, the deposit will need to be verified.
Additionally, if any funds are owed by the buyer at the time of closing, the Earnest Money Deposit will be credited towards that amount.
Can you get your earnest money deposit back?
At the closing of a USDA loan, it’s possible to receive all or a portion of the EMD back, but it’s not guaranteed. Return of any EMD is dependent on the appraisal of the home or if the seller is paying any of the buyer’s settlement charges.
Other Possible USDA Out-0f-Pocket Expenses
- Appraisal Fees and Inspections
- Appraisal fees and inspections are customary out of pocket expenses. They should be paid for by check or credit card when the option is available. Both forms of payments will allow for verification if needed.
- Closing Costs and Pre-Paid Items
- These can be financed through a USDA loan only when the appraisal is high enough to allow for the increased loan amount.
- Buyers can attempt to negotiate with the seller to pay towards their closing costs to help reduce this expense, but this depends on what amount the seller is willing to negotiate.
USDA loans offer no down payment financing, but that is not the same as no money out-of-pocket! We have reviewed all the possible out-of-pocket expenses and you can see that the details are vital to the success of the purchase. As an approved USDA lender, our expertise allows us to help home buyers make the most of their qualifying ability.
Do you have any questions? Just call (800) 806-9836 Ext. 280 or email SeanS@MPLX.org to discuss your scenario. We are excited to show you the “Metroplex” difference!
Feel free to download any of our USDA free resources and make it a great day!