Unlocking Savings: Exploring Seller-Paid Closing Costs in USDA Loans

Closing costs like lender fees, appraisal fees, and title insurance can add up when buying a home with a USDA loan. Can the seller help cover these fees? Here's what to know about getting the seller to pay closing costs with USDA financing.

Key Takeaways

The seller can legally pay the buyer's closing costs on a USDA loan within certain limits.
Negotiate the credit early in the process and put it into the purchase offer contract.
Aim for a reasonable amount, typically 3–6% of the home's purchase price.
Other options, like lender credits, can also help lower total closing costs.

Why Would a Seller Pay Closing Costs?

There are a few reasons a home seller may agree to pay the buyer's closing costs:

To incentivize the buyer to purchase their home over other properties.
To make their listing more appealing in a slow market.
To negotiate a higher purchase price to benefit from the tax savings.
To negotiate concessions if the home appraisal comes in low
To offset necessary repairs or upgrades requested by the buyer.
To smooth negotiations, if the seller wants a specific closing date,

Is the Seller Allowed to Pay Closing Costs on a USDA Loan?

Yes, it is perfectly acceptable for the seller to pay closing costs on a USDA-financed home purchase. The USDA has no rules against third parties like the seller covering the buyer's closing fees.

Some key things to note:

The seller credit cannot exceed 6% of the home's purchase price.
The amount cannot be used toward the buyer's down payment since USDA loans require no down payment.
Any seller-paid closing costs get disclosed to the USDA lender.
The seller credit gets noted on the closing disclosure form.

As long as these guidelines are followed, the seller can legally pay closing fees for the buyer purchasing with USDA financing.

How Do You Negotiate Seller-Paid Closing Costs?

Here are some tips for negotiating a seller credit to cover closing costs on your USDA home loan:

Request the credit early in the process, such as when submitting your initial offer.
Be reasonable. Request 3–4% of the purchase price or less.
Write the request into your offer letter and make it contingent on an appraisal.
Suggest the seller increase the purchase price to benefit from tax savings.
Make sure the credit is documented correctly at closing.
Get pre-approved so you know the maximum amount of closing costs to request.
Be flexible on the closing date or other terms favorable to the seller.

Are There Other Ways to Reduce USDA Closing Costs?

If you can't get the seller to pay closing fees, here are a few more options for reducing your out-of-pocket costs on a USDA loan:

Shop around with multiple lenders to compare quotes.
Ask your lender about the credits they can provide.
See if you qualify for any state or local down payment assistance programs.
Pay for the appraisal and credit report upfront.
Pay discount points to pay down your interest rate.
Roll closing costs into the loan amount.
Take advantage of any seller concessions in a buyer's market.

The bottom line: There are various ways to reduce and finance closing costs with a USDA home loan, either through seller credits or lender/program incentives. Ask your lender what options may work best for your situation.

USDA Loan Closing Costs: Navigating Home Financing

When it comes to the USDA loan program, understanding the intricacies of closing costs is essential. USDA loans, backed by the Department of Agriculture, offer an excellent home loan program for eligible homebuyers with lower household incomes.

One notable benefit is the possibility of the seller covering expenses like the appraisal, guarantee fee, and even property taxes through your loan amount. However, it's crucial to note that the appraised value of your home plays a significant role in this process, as it affects the loan amount you qualify for.

Additionally, your credit score and market conditions can influence your interest rate and the underwriting of your mortgage loan application.

As a borrower, being informed about these factors can help you navigate the loan process and make informed decisions regarding your closing costs.

Summary

In summary, the seller paying the buyer's closing costs can be a win-win strategy when purchasing a home with USDA financing. It makes the seller's listing more enticing while saving the buyer thousands on fees like lender charges, appraisal, and mortgage insurance premiums. Just be sure to negotiate the seller credit early on and document it properly through the mortgage lender and at closing.

A reasonable credit of 3-6% of the purchase price can significantly offset the borrower's upfront costs when buying and financing a rural property with a USDA home loan. Thoroughly evaluate all options, from seller credits to rolled closing costs, when structuring your USDA loan to keep the payment and overall costs affordable.

SOURCE:
Single Family Housing Guaranteed Loan Program (SFHGLP)
Chapter 12: Property And Appraisal Requirements
Chapter 3: escrow, taxes, and insurance