The current interest rate for a USDA single-family housing loan is 4.875%, which is lower than other mortgages. USDA home loans provide a valuable opportunity for many homebuyers, but the USDA loan closing costs can take a hefty toll on the budget.
It’s important to understand the USDA home loan closing costs involved in USDA loan house for budgeting. These costs include fees for appraisal, title insurance, and loan origination. While these costs can add up, there are several strategies to mitigate them. Start your homeownership journey now, get a pre-approval for a USDA rural housing loan.
Get Pre Approved for a Mortgage🏡
Select Your Loan Type
-
New Home Purchase
-
Mortgage Refinance
-
Cash-out Refinance
What Is a USDA Loan?
The United States Department of Agriculture (USDA) home loans are government-backed mortgages. The USDA loan program offers affordable financing options to buy a house in a rural area.
For you as a homebuyer with limited savings, the USDA no down payment loan makes buying a home simpler process. Additionally, it offers low interest rates.
However, you must meet certain requirements regarding your location, income, and other factors to qualify for a USDA loan. Some of these include:
- Debt-to-Income (DTI) Ratio: DTI measures how much of your gross monthly income goes towards paying debts. Mortgage lenders use this ratio to assess your ability to manage monthly payments and repay your debts.
- Nationality: To be eligible for a USDA loan, you must be a citizen of the United States and a non-citizen national. However, qualified aliens may be eligible under certain circumstances.
- Credit Score: While USDA loans don’t have a minimum credit score requirement, having a credit score of at least 640 can improve your chances of approval.
- Income: The household income of a USDA loan borrower can be up to 115% of the median household income in their area.
- Property: The property location must be in the designated rural area. Further, the property must be a single-family primary residence.
How Much Are Closing Costs on a USDA Loan?
USDA Closing costs typically range from 2%-6% of the home purchase price. However, they can depend on several factors including loan amount, property location, and lender’s fees.
USDA loans also include an upfront guarantee fee which is a charge similar to mortgage insurance. This fee is 1.0% upfront of the loan amount and paid at the closing. Additionally, there’s an annual fee of 0.35% of the loan amount.
Types of USDA Loan Closing Costs
Closing costs for USDA loans usually consist of property-related and USDA loan-related costs.
USDA Loan-Related Costs
USDA payments are typically lower than conventional mortgages. However there are costs involved. Some of the USDA loan-related costs include:
- Loan Origination Fee: The mortgage origination fee is a charge from the lender for processing the loan. It is 1% of your loan amount.
- Credit Report: Loan applications involve a credit score check by the lender to assess your borrowing risk. It includes an estimated cost of up to $100 per application.
- Underwriting Fee: The lender will assess your USDA loan application and charge a fee to ensure it meets all requirements. The cost will be $500 to $1,000.
- Mortgage Appraisal Fee: A home appraisal determines the property’s value before approving the loan. This cost of between $600 – $750.
- Prepaid Interest: The number of days between your closing date and the end of the month determines how much interest you must pay back on your loan.
- Title Search: It is a search into the home title to ensure there is no legal or ownership issue. The cost to be paid is $500 to $1,000.
Property Expenses
The costs associated with your property will vary based on its location, local tax rates, and the insurance provider you choose.
- Prepaid Property Taxes: When you pay for your loan interest, you need to pay property tax. The cost varies depending on the value, but usually, it is 1%.
- Recording Fees: A fee of $300 is charged to officially record your mortgage and property details with the local government.
- Homeowners Association (HOA) Fees: HOA fees are the amount you pay to maintain and manage shared amenities and services.
- Home Warranty Fees: It is an amount you pay when you purchase a home. It can be paid at closing time. The cost is $300 to $500.
How Can You Pay for USDA Loan Closing Costs?
You can pay the USDA mortgage closing costs in the following ways:
- Seller’s Concessions: Sellers can contribute to your USDA home closing costs. USDA loans grant seller concessions up to 6% of the sales price. You must bargain with the seller to cover the total transaction’s closing costs.
- Roll Closing Costs Into a USDA Loan: With USDA loans you might be able to add closing costs to your mortgage if the home’s appraised value exceeds its sale price. You can then pay this closing costs as part of your loan overtime.
- Lender Credits: To make USDA loan more affordable, your lender may waive certain fees or offer credits that reduce your closing costs. However, lender agrees to this in exchange of a higher interest rate.
- Gift Funds: Gift funds can be used to cover closing costs, provided they are a genuine gift and not a loan. It can be received from family or friends. To ensure the funds are properly documented, you’ll require a gift letter.
- Down Payment Assistance Programs: Depending on your financial eligibility, you can cover closing costs with down payment assistance. This includes grants and forgivable loans. Look into local or government programs to help you with closing costs and down payment.
Are USDA Loan Closing Costs Important to Know?
Understanding USDA loan closing costs is crucial to know. If you’re purchasing your first home and have limited funds. The USDA loan will be the best option, with no down payment. The closing costs for a USDA mortgage loans are comparable to those for other mortgage loans.
They can vary based on factors such as the loan amount, location, and lender. USDA loans can be a viable option for you, as they have a lower interest rate, flexible credit requirements, etc.
Find Your New Home With Houzeo
With thousands of property listings, Houzeo.com is one of the biggest property listing sites in the US. Find condos, townhouses, co-ops, and other types of homes for sale on Houzeo.
» NEED MORE CLARITY? Read these exclusive Houzeo reviews and learn why the platform is the best in America’s competitive housing market.
Frequently Asked Questions
Who pays closing costs on a USDA loan?
USDA loan closing costs are generally paid by the buyer. However the seller can often contribute a portion of the closing costs.
What is the down payment for USDA loan?
USDA loans require no down payment, which make them an appealing option for eligible buyers. A zero-down homeownership for low-to-moderate income families.
What closing costs should you expect with a USDA construction loan?
USDA construction loan closing costs typically include fees for appraisal, title insurance, and loan origination. These costs can vary but are generally similar to those for standard USDA loans.
