USDA Loan Closing Costs: What to Expect in 2025
USDA home loans offer many benefits, including no down payment, no private mortgage insurance, and competitive interest rates. But like all mortgage loans, you will have to pay closing costs.
These are fees and expenses home buyers must pay at closing, some of which are unique to USDA loans. This guide includes answers to common questions on how USDA loan closing costs work.
Closing costs on USDA loans generally cost between 3% to 6% of the home purchase price.
“I’ve helped countless clients with USDA loans, and I can vouch that these closing costs typically run no more than 6% of the loan amount,” says personal finance expert Andrew Lokenauth. “In my experience working as a loan officer, USDA loans tend to cost about $1,000 to $2,000 more than conventional loans, primarily due to the upfront guarantee fee required to be paid on USDA loans. Still, I’ve found that these loans are often cheaper than FHA loans by $3,000 or so on average.”
However, every homebuyer's situation is different, and closing costs can vary significantly depending on the home price, location, lender fees, and other closing expenses. For example, some lenders might charge a fee to originate and process your loan, while others don’t.
If your home purchase price is $300,000, your closing costs could range from $9,000 to $18,000. For the purpose of this example, let’s assume you have to pay 4% in closing costs, or $12,000.
USDA closing costs fall into two categories — loan-related costs and property-related costs. Understanding the difference between the two can help you plan more effectively and avoid surprises at closing.
Here are some of the loan-related expenses to expect when closing on a USDA loan:
Angelo Crocco, a Certified Public Accountant and owner of AC Accounting points out that the upfront guarantee fee is easily one of the most misunderstood elements of any mortgage loan available.
“It’s technically not a traditional closing cost because it usually gets rolled into the loan balance almost every time,” he says. “But here’s the catch — by financing it, borrowers are essentially paying interest on it for 30 years. So if on a $300,000 loan you pay $3,000 extra upfront, with interest compounding you will actually pay almost twice that upfront fee over the life of the loan.”
| Loan-Related Cost | Description | Estimated Expense |
|---|---|---|
| Origination fee | Lender charge for processing a new loan application, expressed as a percentage of the loan amount | 1% of loan amount |
| Processing/underwriting fee | Lender charge for the administrative costs of processing the loan and making a decision on loan approval | $500-$1,000 |
| Notary fees | Charges for the service of a notary public to officially witness and certify the validity of the signatures on loan documents | $100 |
| Title search | The cost of examining public records to verify the legal ownership of the property and ensure the absence of liens or claims against it | $500-$1,000 |
| Credit report fees | Charges for accessing your credit history from credit bureaus to evaluate your creditworthiness | $100 |
| Appraisal fee | Determines the market value of the home to make sure it is worth at least as much as you are paying | $600-$750 |
| Discount points | Optional upfront payment to the lender to lower your interest rate | 1% of loan amount per discount point |
| Prepaid interest | The amount of interest owed for the days between your loan closing and the end of the month | Varies |
USDA homebuyers will also pay a 1% upfront guarantee fee unique to this loan program. Buyers can usually finance the upfront fee into their loan on top of what they’re borrowing to purchase the home.
USDA homebuyers will also encounter closing costs related to the property itself and the overall transaction. These charges may include:
“These property-related charges aren’t often referred to as ‘closing costs’ exactly, but they are things you need to pay for at or near closing, and they can affect how much cash you’ll need at the closing table,” says Dennis Shirshikov, a professor of economics and finance at City University of New York/Queens College.
| Property-Related Cost | Description | Estimated Expense |
|---|---|---|
| Property taxes | Upfront property tax payment for a specified period, often required by lenders to be placed in an escrow account at closing | 1% of property value |
| Homeowners insurance | Advance payment for the first year of your home insurance premium, typically required by lenders | $800-$1,500 |
| Recording fees | One-time payment to officially record the change of property ownership and the mortgage on public record | $300 |
| HOA fees | If buying a home in a neighborhood with a Homeowners Association (HOA), fees may include upfront payments required for membership, covering communal property maintenance and amenities | Varies |
| Home warranty | While not required, a home warranty covers a wide variety of house-related costs not covered by your homeowners insurance. | $300-$500 |
Closing costs for USDA loans are similar to other mortgage options, with a few exceptions. One unique feature of a USDA loan is the 1% upfront guarantee fee, which isn’t required for conventional mortgages, FHA loans, or VA loans.
“On the bright side, USDA loans usually don’t include the higher lender fees or discount points typical with a conventional loan,” explains Shirshikov. “Furthermore, since these loans are meant to help make housing affordable in rural areas, borrowers are often eligible for financial assistance programs that may reduce some of these costs, which is not always true of other loan types.”
FHA loans have their own version of an upfront guarantee fee, called an upfront mortgage insurance premium. This equals 1.75% of the loan amount, so you’ll pay $5,250 on a $300,000 FHA loan. That’s a higher percentage than the USDA charges.
First-time VA home buyers who don’t make a down payment pay a 2.15% funding fee, which is $6,450 on a $300,000 loan. Repeat VA borrowers without a down payment will pay a 3.3% fee. Making a down payment of 5% or more can lower the fee.
Conventional loans don’t charge upfront fees, but if you put less than 20% down, you’ll have to pay private mortgage insurance. This often equates to between 0.58% and 1.86% of the original loan amount annually. On a $300,000 loan, you could pay $1,740 or more every year.
USDA closing costs can be paid in a variety of ways — here are your options:
You can use our USDA loan closing cost calculator to estimate your monthly payments without closing costs to see how much room you have in your budget.
If you’re unable to negotiate for seller or lender credits and you’re unable to finance them into your overall loan amount, you’ll need to find an alternative method to pay for USDA closing costs upfront. This can involve borrowing from relatives or friends, taking out a personal loan, or using credit cards.
You can’t typically use a credit card to cover final closing costs, but you can use one for certain costs paid earlier in the process. This includes expenses like home inspections, appraisals, credit reports, interest rate lock fees, and the initial homeowner’s insurance premium.
USDA closing cost assistance refers to programs or options available to help buyers cover their closing costs for a USDA loan. While the USDA itself does not directly offer closing cost assistance, there are several ways for buyers to seek help with these expenses.
For example, some local or state housing authorities and non-profit organizations offer grants or assistance programs for first-time homebuyers or low-to-moderate-income buyers that can be applied toward closing costs. If you’re interested in these programs, speak with your lender about the availability of assistance options along with any requirements or limitations that may apply.
Does a USDA loan cover closing costs?
USDA loans can help reduce what you pay upfront and out-of-pocket by offering several ways to cover closing costs. If the lender allows it, you can roll your closing expenses into the loan if the property’s appraised value surpasses the sales price. In addition, sellers are allowed to contribute up to 6% of the purchase price to help with these expenses. You can also take advantage of lender credits or use gift funds from friends or relatives to further decrease what you need to pay yourself.
Can USDA loan closing costs be rolled into the loan amount?
Generally, you can't use your loan to cover closing costs, a process also referred to as "rolling in the closing costs." However, with USDA loans, you have the option to include some or all of your closing costs in the mortgage if the home's appraised value exceeds the sales price.
What’s included in USDA loan closing costs?
Closing expenses for a USDA loan encompass fees across two categories — loan-related closing costs and property-related closing costs. Collectively, these can include an upfront guarantee fee, loan origination fee, appraisal fee, title insurance fee, title search fee, credit report fee, underwriting/processing fee, recording fee, survey fee, escrow setup fee, prepaid interest, property taxes, the first year’s homeowners insurance premium, home warranty fee (if applicable), HOA transfer fee (if applicable), and discount points (optional).
Are USDA loan closing costs the same in every state?
No, closing costs for USDA loans can vary from state to state. For example, some states charge higher recording fees and title insurance premiums.
Do USDA loans require mortgage insurance?
No, USDA loans do not require paying any form of mortgage insurance, even if you don’t make a down payment. However, you will pay an upfront guarantee fee that equals 1% of the loan and an annual fee that’s 0.35% of the loan amount.
Can I use gift funds to pay USDA loan closing costs?
You can use money from family, friends, or even a charitable group to cover closing costs. You’ll need a gift letter stating that it’s not a loan and proof that it came from their bank account. If the lender verifies that your gift fund documentation is legitimate, it’ll be accepted.
Are USDA closing costs refundable if the deal falls through?
If your USDA loan falls through, some costs might be refundable. Your earnest money could be refundable if it’s outlined in the purchase agreement. However, certain fees are non-refundable if the work has already been completed. And the upfront guarantee fee is non-refundable once the USDA issues a Loan Note Guarantee (LNG).
