Even with the money-saving benefits of a USDA loan, it's important to remember that any real estate transaction, including purchasing or refinancing a home, has closing costs.
USDA loan closing costs are the fees and expenses that USDA homebuyers must pay at the time of closing. These costs are similar to those encountered with other types of mortgage loans but also include some specific fees unique to USDA loans.
Closing costs on USDA loans generally run between 3% to 6% of the home purchase price.
However, every homebuyer's situation is different and closing costs can vary significantly depending on the price of the home, the location, lender fees, and other closing expenses. For example, some lenders might charge a fee to originate and process your loan, while others might not.
USDA closing costs fall into two categories: loan-related costs and property-related costs. Understanding the difference between the two allows you to fully prepare for the closing costs you may run into with a USDA loan.
Buying a home with any mortgage will include closing costs related to the general loan process, and USDA loans are no exception.
Here are some of the loan-related expenses to expect when closing on a USDA 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 transaction of buying a home, not directly to the mortgage loan.
These costs may include:
| 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 |
For USDA loans, typically, the buyer is responsible for paying the closing costs. However, buyers may be able to use the following methods to help cover them:
If you’re unable to negotiate for seller or lender credits and you’re unable to finance them into your overall loan amount, you will need to find an alternative method to pay for USDA closing costs upfront.
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.
