Closing costs are fees incurred with the sale of real estate properties. These include all applicable costs that are due at the time of the title transfer to the home buyer. Closing costs can be covered by either the buying or selling party. While these costs are typically covered by the buyer, it is possible to negotiate an agreement where the closing costs are covered by the seller or even occasionally the lender. The costs associated with closing can be paid in full at the time of the purchase. They can also be partially or fully financed by including the costs in the amount of the loan as long as there is leeway between the appraisal value, the sale price, and the total loan percentage being financed.
For USDA purposes, a full list of closing costs must be listed in your settlement form, a document required to be finished before finalizing the purchase price of the property. Closing costs can include any costs associated with the sale and purchase of the property including origination, escrow, notary, lender, and title insurance fees. Appraisal costs are not included in closing costs since they are paid upfront at the time of the appraisal.
Depending on the price the home is valued at and what percentage of that value is asked for in the loan, your lender pays closing costs as a special offer, the seller can offer to pay them, or they can sometimes be added to the mortgage to alleviate the burden of any initial costs.
Loans through the USDA rural housing loan program will finance up to 90% of the estimated property value. The last 10% in value is given as a cushion for approved lenders to assure they do not overextend on the loan and risk defaults with significant negative value.
Usual Closing Costs Include
- Lender Fees
- Origination Fees
- Escrow Fees
- Title Insurance Fees
- Credit Repair Costs
- Notary Fees
Closing Costs Might Also Include
- Title Insurance
- Courier Fees
- Wire Fees
- Recording Costs
Because there are several different fees, which can all vary greatly depending on the transaction and home value, closing costs can vary quite a bit. By law, the lender you are working with must provide a Good Faith Estimate of these costs. This estimate will provide a cost to expect for closing costs, but the actual amount will not be finalized until all applicable paperwork has been submitted.
While closing costs vary, the national average puts these costs somewhere between 2% and 4% of the agreed-upon purchase price for the property. Again, these fees are typically paid by the buyer, but can be negotiated to be covered by the seller. Occasionally the lender and may be paid in full upfront or these fees may be wrapped up into the total value of the loan.
Non-Closing Cost Payments
In addition to closing costs, which must be detailed in your settlement report, there may be other costs that you will need to pay at the time of the sale including:
- Fire Insurance
- Flood Insurance
- Prepaid Interest
- Property Taxes
The closing costs and timeline associated with a USDA loan can vary greatly depending on who you work with. Since the USDA program is through a government agency, it can be more time consuming than a traditional loan. It is critical to find the best lending agency to work with to ensure all the necessary paperwork is submitted in a timely manner. The cost of USDA rural loans is lower than that of a traditional mortgage. Finding a good lender to work with will only increase the savings you can have in closing costs upon purchasing a home.
Are you curious about what your USDA closing costs will be for your loan? Contact a Mortgage Advisor today.