What closing costs can be included in a USDA loan?

Question: What closing costs can be included in a USDA loan? While I am commonly asked this specific question, “rolling costs into a USDA loan”, makes it sound as if this automatically occurs without any additional steps.

Additionally, many associate no down payment or 100% financing as being the same as no money out of pocket, and because these are two completely different things, this can lead to high frustration if not properly explained. 

Thankfully, USDA loans are flexible with how you can manage closing costs and in today’s video tip we will cover the details about how you can finance closing costs into a USDA loan and help reduce those out of pocket expenses.

Can you roll closing costs into 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 because it is customary for a buyer to have two 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 the homebuyer is still responsible for their respective costs.  This can be either paid by using their own funds, negotiated for the seller to pay through the sales contract, or in the case of a USDA home loan the possible ability to finance those costs into the loan.

Financing closing costs with a USDA loan is available in cases when the appraised value is HIGHER than the agreed-upon sales prices

Here are examples of what closing costs can be included in a USDA loan:

1. Closing Costs such as 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.

The key points to remember are that the appraised value must be higher than the sales price for this feature to be available.

This is unique for USDA home loans, and not available under Conventional, FHA, or VA programs.

Homebuyers should be cautious if they are solely relying on financing closing costs to cover their out-of-pocket expenses because that is determined by the final appraised value which happens after the sales contract is agreed upon.  Financing closing costs should be viewed as a potential advantage, not a guarantee!

As you can see by the facts today, don’t just assume that closing costs can be included in a USDA loan, but understand that it depends on the appraised value. You may be able to increase your loan amount and finance closing costs into a USDA loan.

Also, if you need help or have a question that is what we are here for, so just call or email because we are known for returning calls, replying to emails, and responding to your messages.  Wouldn’t it be nice if everyone did that!