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Closing Costs

Home Closing Costs
Home Closing Costs

Facts On Closing Costs In USDA Loans

What are closing costs? Every type of loan has some closing costs. Closing costs include a wide variety of one-time costs associated with closing the mortgage deal, generating all of the needed paperwork and legal information, and making sure the new owner has full control of the home.

Closing costs are unavoidable whenever you want to make any kind of real estate agreement. However, closing costs do not necessarily have to be very expensive. Likewise, when you are using a USDA home loan, you have options for dealing with your closing costs.

A USDA Guaranteed home loan provides you with the opportunity to finance 100% of the value of the home. However, that does not include the closing fees. What can you do with those?

You can finance the closing fees in most situations when using a USDA home loan.

Depending on the appraised value of the house, it might be possible to simply roll your closing costs into the amount you are financing. This will make the loan a little bit larger.

The other possibility is seller concessions. Sellers are allowed to pay (concede) any amount when they are engaged with a buyer who is using a USDA loan. The only major requirement is that the seller's concessions be considered reasonable.

No matter how you intend to get the money for your closing costs, it is possible to negotiate lower closing costs. You should work with experts in the USDA loan process to achieve this.

 

Important Points

No matter what kind of property you are purchasing or what kind of loan you are using, you will have some form of closing costs associated with the transaction. These costs allow the real estate agent, the lender, and others in the process to generate the necessary paperwork.

Before you finalize the purchase of your new home, you will receive a settlement form. The settlement form is required to list all of the costs that would typically be called closing costs.

In most cases, closing costs are paid for by the buyer of the property. However, it is often possible to make other kinds of arrangements in order for the buyer to pay less out of pocket.

Some of the most common closing costs include the following:

  • Fees associated with your title and mortgage insurance, lender fees, escrow and notary fees
  • Fees for the origination of the home loan and the related processing and paperwork involved
  • Credit repair costs if any, as well as a variety of other costs that are highly situation-dependent

Closing costs are not usually very high and are much lower than the 10% down payment that most other loan types require. That said, you can always try to make your terms more favorable.

 

Brief Summary

Closing costs are an inevitable part of any kind of real estate transaction. In most every home loan situation, the lender will compile the total fees, no matter what source they might come from, and then present the final total of those fees to the borrower.

The borrower is obligated to settle the closing fees before the ownership of the home can be transferred. This is why they are called closing fees since they cannot be deferred until later.

You will be able to start working on the closing fees as soon as your lender or realtor provides you with a good faith estimate of what they are. Although they could turn out to be slightly higher or lower, the good faith estimate serves as an important record.

In many cases, borrowers who are using USDA home loans may roll the closing costs into their home loan. In order to do so, there needs to be an appreciable difference between the price of the home and the appraised value. If the appraised value is higher, even by a small amount, you can put this amount toward the closing costs.

You also have the option of choosing to pay some portion of the closing costs out of pocket. If you do this, then you will have less money that you need to finance and pay for in the future.

If an agreement can be negotiated between the seller and buyer, then the seller may choose to concede (pay for) the closing costs. This is usually only possible if the costs are very low.

There are so many different kinds of fees that can be included in closing fees that it would be impossible to list them all. However, the lender is responsible for providing a final itemized list of all of these fees. They usually work out to somewhere between 2% and 4% of the home price.

Typically, a $75,000 home would have $1,500 to $3,000 in closing costs.

A USDA loan gives you an advantage over the fees and closing costs associated with the loan will be lower than with private loans. That also includes recurring fees, such as property taxes or flood insurance.

Experts on the USDA home loan process can help you negotiate the best possible deal.

 

FAQ

Q:

"What are USDA loans all about?"

A:

Sponsored by the U.S. Department of Agriculture, a USDA home loan is a home loan with competitive rates that are backed by the U.S. federal government. This type of loan makes it possible for people with modest or moderate incomes, living in rural areas, to get a home loan even if they cannot qualify for traditional funding.

Q:

What is the Guarantee Fee?

A:

The Guarantee Fee is a form of insurance that helps offset lenders' risk in the event that the borrower is not able to maintain the home loan. This fee is typically paid monthly and can only be waived if the borrower chooses to put down a 20% down payment.

Q:

Why is the Guarantee Fee so low?

A:

The Guarantee Fee goes down over the course of the loan. When you reach 20% equity on your home, your Guarantee Fee will decrease dramatically.

Q:

How much are closing costs?

A:

Closing costs are typically 2%-4% of the home value.

Q:

Can closing costs be financed?

A:

Closing costs can typically be financed when there is a difference between the home's price and the appraised value.

Q:

Do I need to make a down payment?

A:

No down payment is required for a USDA home loan.



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