We have received many questions lately regarding USDA financing and closing costs. Generally speaking, for a new home purchase in Texas, the buyer can expect to pay around 4.5% (of the purchase price) for closing costs and prepaid escrow requirements. Escrow requirements include prepaid taxes and home insurance. 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 can be negotiated during the contract process.
One of the great benefits of the USDA loan is the flexibility it allows regarding closing costs. First, the seller is permitted to give concessions (pay for) the buyers closing costs – up to 6%. These closing costs and escrows can be negotiated into your purchase contract and paid by the seller as part of the transaction. 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 Example:
Home purchase price – $130,000
Closing costs and escrows to be paid by home buyer – $5,500
Appraised value – $136,000
In this example it would be ok to roll in all of your USDA closing costs into the new loan, the home appraisal supports it. Your total loan amount would be $135,500 plus the 1% USDA guarantee fee which can always be included in the loan regardless of the appraisal.
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 earnest money deposit when you write your purchase contract. This amount is usually around $500- $1,500 depending on the sales price. This deposit money will be placed into a separate escrow account by the closing agent and applied. Appraisal and home inspection fees will also be paid in advance – these costs are generally $300 and $450.
Depending on the seller’s 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 the closing table.
If you have questions and want to learn more about USDA, FHA, or VA loans – please contact us at the number above.