USDA Rural Housing is a wonderful government backed mortgage program that still permits up to 100% financing in eligible locations through the US. In addition zero down payment, the program also allows home buyers a number of options to get their closing costs paid. Below we talk a little on how not to pay USDA closing costs out of pocket. Please contact us at 800-871-2636 with questions, or visit us at https://www.fivestarsmortgage.com/usda-rural-loan for more information.
- Increase your contract offer amount: Let’s say you decide to purchase a home and decide to offer $140,000, additionally you need around $5,000 for all the closing costs and pre paid escrow items (taxes and homeowners insurance) Submit the offer at 145K and ask the seller to pay $5,000 towards your closing costs. As long as the home appraisal comes in at $145,000 or above, this is perfectly ok. Furthermore it’s all the same to the home seller as their net proceeds would be the same. Note, all of these things are negotiable, the offer amount and / seller contributions will depend on many factors. A experienced realtor will offer a great deal of help.
- Add the closing costs into your loan – Let’s assume the home seller doesn’t want to contribute anything towards your USDA closing costs. Buyers can add all the closing costs needed assuming the home appraises high enough. USDA loans are great in that buyers can roll the closing costs up to appraised value. This differs from the first option in that this is not a seller contribution and you have to wait until the contract is approved and appraisal is back to know if it will work and for how much. Word of caution, be sure you have a “Plan B” as a backup in the event that the home doesn’t appraise high enough to cover the closing costs. If the home you purchase is $150,000 and the appraisal only comes back at $150,000 – you will need to have the means to pay all closing cost out of pocket. However, you can receive gift funds to cover the closing costs expenses.
- Credit from lender – Each interest rate either costs you money or pays you back money that can be used to cover closing costs. As an example if the rate of 3.875% cost you $200 and 4.25% paid you $5000 that money can be used as a credit towards closing costs. You need to discuss this option in detail with the mortgage company and understand the long term impact in regards to payment and interest.
- Combo of all three – It’s not one way only with USDA, you have flexibility. Buyers can have the seller contribute some of the costs, and roll in the rest of the closing costs into the loan assuming the appraisal supports it. Or have the lender pick up some of the costs via higher interest rate. Example: Home purchase price is $160,000 – appraisal amount is $162,000. The buyer will need $5,000 for all closing costs and escrows. In this example the home seller can pay $2,000, the buyer can roll in $2,000 into their loan, and the lender pays $1,000 as a credit towards closing costs. The home buyers comes to the closing with no out of pocket cash.
USDA mortgages are true no money down 100% financing and if structured correctly can be NO up front cost loans. Florida and Georgia home buyers that have questions about how not to pay USDA closing costs, or just want to learn more can submit the orange “Request Contact” form at the top right side of your screen. Mobile users can find the short Request Contact Form here. Serving all of Valdosta GA, Thomasville, Savannah, Macon, Columbus, Waycross, Tifton, Albany, Warner Robins, Jacksonville FL, Tallahassee, Lake City, Pensacola, Destin, Panama City, Madison.