We often received many questions about USDA closing cost fees and financing charges. Generally speaking, for a new home purchase the buyer can expect to pay 3 -6% ( based on purchase price) for closing costs and pre -paid escrow requirements. The exact amount can vary greatly depending on the home purchase price and state. The home seller will have “customary” closing costs that they are responsible for, and the buyer will have the same. Again, these closing costs are “customary” and not set in stone and can vary based on the state. But in the end, everything is negotiable.
One of the great benefits of a USDA rural loans is not only is the program 100% financing, but it allows added flexibly in regards to closing costs. First, the sellers is permitted to give concessions (pay for) the buyers closing costs. There is no limit on this. These closing costs and escrows can be negotiated into your purchase contract and paid by the seller as part of the deal terms. In some cases this option may not be feasible with the seller. When this option is not possible, there is a second option as well.
The second option for closing costs involves including the costs, or rolling in the cost into your new loan. This option has nothing to do with the home seller. USDA will permit any pre approved buyer to roll in their closing costs if the homes appraised value supports the increase. Your new home must appraise high enough for this option to be used.
Home purchase price – $150,000
Closing costs and escrows to be paid by home buyer – $5,200
Appraised value – $156,000
In this example it would be ok to roll in all of your closing costs into the new loan, the home appraisal supports it. Your total loan amount would be $155,200 plus the 2.75% USDA guarantee fee.
Now you have your USDA contract fully approved and closing costs are taken care of as well. What else can the home buyer expect to pay? Generally you will be required to pay an escrow or earnest money deposit when your purchase contract is accepted by the home seller. This amount is usually around $500- $1,500 depending on the sales price. It’s best to refer to your realtor for the proper good faith deposit amount. This deposit money will be placed into a separate escrow account by the closing agent and applied in the end. Appraisal and home inspection fees will also be paid in advance by the buyer – these costs are generally $400.00 – $650.00 together. Depending on the sellers 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! So in the end the home buyers can end up investing little to no money in the transaction. Again, proper contract negations is the key.
Update October 1, 2016 – the USDA guarantee fee has been reduced to 1% of the buyers loan amount.
If you have questions about USDA closing cost fees or interest rates, please contact Five Stars at ph: 800-871-2636 or just submit the Request Contact form on this page. We are available to serve you 7 days a week.