The Home Buyer's Korner

Information presented should be used for educational purposes only.

October 23rd, 2014

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USDA Financed Closing Costs 

Closing CostRural Home loans are sought after by home buyers for their flexibility. One sought after by many home buyers is the ability to finance the closing cost home buyer may be obligated to pay.

Additional lender guidelines may apply, so discuss your financing options with your mortgage lender to insure you are eligible to finance closing costs into your USDA Rural Development Zero Down Home Loans.

So, how can you finance 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:

  1. Down Payment and,
  2. Settlement charges (also known as closing costs)

USDA loans eliminate the need for a down payment, but a home buyer may still be responsible for their closing cost, if not negotiated by your real estate agent for the seller to pay. Closing cost can be paid by using your own funds, negotiated for the seller to pay and agreed upon in your purchase agreement, or in the case of a USDA home loans the ability to finance your closing costs into your mortgage loan.

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

Normal closing cost most home buyer are obligated to pay, but can be financed or paid by the seller or third party are:

  1. Title Charges, Loan Costs, Survey, Recording Fees, etc.
    2. Pre-Paid Items such as your Escrow Accounts, Homeowner’s Insurance Premium, and Pre-paid Interest can also be included in these fees.

Again the KEY point to remember is that the appraised value MUST be higher than the sales price and the difference can be used to apply to your closing cost for this feature to be available if you’re considering using a USDA Rural Development Zero Down Home Loan. This is unique for USDA Rural Development Home Loans and not available under Conventional, FHA, or VA programs.

Home buyers should be cautious if they are solely relying on financing closing costs to cover their out-of-pocket expenses.  Since an appraisal is completed after the sale price is agreed, financing closing costs should be viewed as a potential advantage, not a guarantee!  Working with an experience Buyer’s Agent can be advantageous, however. Working with an experienced real estate agent who know the market more often than not know home values and with a lot of research on their part, can more often than not provide you with a list of home whose listing price appears understated or are simply great negotiators when it comes to representing the home buyer.

Additionally, qualifying for a USDA home loan can be both difficult and overwhelming and you want to have a team of real estate professionals on your side. Make sure you also work with a lender that specializes and understands the USDA loan process.  If you do it’s a match that can open the door to homeownership.


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