Who Will Pay Your Closing Costs On A New USDA Loan?

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Do you know who is allowed to pay closing costs on a new USDA Loan?

USDA Closing CostsMost buyers just leave it up to the real estate agent to negotiate closing costs with the seller.  And this can be a mistake that can cost you thousands if you don’t provide your agent with the proper information about the USDA Loan and their rules regarding seller concessions.

If you do have the correct information for your agent about the USDA Home Loan then they can do a proper analysis for you in order to prepare your best offer which would take into consideration several things including the potential price, the amount of money you ask the seller to contribute towards your closing costs, and any down payment.

Closing costs encompass all the expenses tied with buying a home.  Here is a partial list of closing costs for various loan types:

  • Title
  • Escrow
  • Appraisal
  • Credit Report
  • Underwriting
  • Wire
  • Processing
  • Funding
  • Flood Certification
  • Notary
  • Attorney Fees
  • Title Endorsements
  • Recording
  • Guarantee Fee

This is a very generic list, and the closing costs you see may or may not include them.

Apply for a USDA Loan Online Now: Loan Application

With a USDA Loan, the seller is not limited in the amount that they can contribute to your closing costs.  The amount of the contribution must be reasonable.  Negotiating for a seller to pay between 3% to 7% for closing costs in Arizona is considered reasonable.  On a $200,000 house just getting the seller to pay 3% toward your closing costs will decrease your expenses by $6,000.  How much can you save if you ask the seller to pay 6% or even 7%.

And you can’t ask for too much, and I’ll get to that in a moment.

The USDA Loan also will allow Gift Funds to pay for closing costs or even a down payment.  The gift funds can come from a family member or even a down payment assistance program.  You can’t do that with FHA these days.  Funds from Ameridream or a similar housing assistance program may be used.

Many times that assistance comes in the form of a “Soft Second” which is perfectly fine for the USDA Loan, even if the total debt exceeds the appraised value of the property.

Let’s get back to the seller paid concessions..

Seller concessions can even be used as a down payment.  I know, sounds strange.  But imagine for a moment that you have a seller willing to contribute “X” amount of dollars toward your closing costs.  But your total closing costs were only “Y” which would leave the amount “Z” unused.  Well, with the USDA Loan that amount “Z” can be used as a down payment.

Try that with FHA, VA or Conventional Financing!

To find out if you qualify for a USDA Loan call (520) 225-0380 or click on the Get Started on USDA tab above and ask for a quote.  If you want to go ahead and get your application in, you can fill out my Home Loan Application Online here.

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7 Responses to “Who Will Pay Your Closing Costs On A New USDA Loan?”

  • Dave Thompson on December 8, 2010

    Paul-
    GREAT looking site for USDA. Is this like your FHA site where there is a person in each state? Love to inquire about the New Jersey territiry if that opportunity exists / is available. Did you design this?
    Super Dave Thompson

  • pauldunn on December 9, 2010

    @ Super Dave – Thanks! I put it together and over the years have been able to streamline it. I’ll shoot you an email about NJ.

  • Stephanie on August 24, 2011

    We are looking to get into a New home in the menifee/sun city CA area.
    The new homes are offering 10k either off the home price or towards your closing costs. Would we be able to fit the USDA (the home and us fit the requirements) and still have them pay the 10k towards closing?

  • pauldunn on August 25, 2011

    @ Stephanie – The new home builders tend to steer buyers toward using their bank in an effort to earn extra commissions on the loan. It is a pure violation of RESPA, but most builders do it anyway because there is not much enforcement of the law. I’ll post the contact info for some good USDA lenders in your area and you may want to ask them.

  • pauldunn on August 25, 2011

    @ Stephanie – I would contact Brad Yzermans. You can find his blog at California USDA Lender and he is just about 10 minutes away from that area.

  • Danni on December 30, 2011

    My husband and I are purchasing a new home in Marana, AZ and are getting a USDA Loan- our problem is that we also qualify for the Mortgage Revenue Bond Program, which will give us a fixed rate of 2.99% on our loan; the catch is, the builder’s mortgage company will NOT match the rate, and if we don’t use them, then we lose $5,000 in closing costs. Do younow of any closing cost assistance programs here in Tucson and/or for USDA Loans in our area? Thanks!

  • Alejan on February 1, 2012

    Can closing costs be covered by my loan? I have a USDA loan and seller is unable to assist and has an FHA loan making 100% of closing costs our responsibility, can our loan cover these costs?

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