Can the Seller Pay Your Closing Costs on a USDA Loan?

Can the seller pay all my closing costs?

The main benefit of a USDA home loan is that it does not need a down payment. In a nutshell, a USDA loan provides 100 percent financing.

Cash-strapped home buyers may find it difficult to acquire a home, even without a down payment.

Because the USDA understands how difficult it is for cash-strapped home buyers to come up with enough money to cover closing and escrow costs, the USDA allows the home seller to pay up to 6% of the sales price toward the buyer's needed costs.

The seller contributions cannot be used to pay off an applicant's personal debts or as a purchase incentive by including removable personal items like automobiles, furniture, yachts, and electronic equipment. This excludes household appliances, which are typically included in the purchase price.

Lender Paid Closing Costs

You might be surprised to learn that the cash requirement can be further reduced with lender paid assistance. The seller contribution does not include closing expenses and/or prepaid costs paid by the lender by way of premium pricing.

Premium pricing means that the lender is allowed by the USDA to pay a percentage of the home buyer's expenses in exchange for a higher interest rate.

Seller Paid Closing Costs

As previously mentioned in this article, seller help, also referred to as seller financing and seller assist, may be used to cover customary and reasonable closing expenses. Closing costs cannot exceed what the lender charges other applicants for similar transactions, such as VA-guaranteed or FHA-insured first mortgage loans.

The loan closing fees cannot be higher than those charged to other applicants for a similar program requiring conventional mortgage insurance or a guarantee if the lender does not offer other government-backed loan programs.

What are Closing Costs?

When you buy a house, you'll have to pay for a number of services to safeguard your and the lenders' interests. Here is a list of typical services required for the purchase of a home:

Appraisal

There are two purposes for the appraisal. The appraiser's first responsibility is to determine the home's worth because it is the loan's collateral. In addition, the appraiser evaluates the home's overall condition. Although an appraiser is not a home inspector, he or she can examine the property's overall condition and recommend that any issues are addressed further by a professional. Sparking wires or major water leaks, for example, will prompt an investigation.

Closing Attorney/Title Insurance Agent

Someone has to tell you and the seller where to sign and explain the mountain of papers that a mortgage requires. In some U.S. states, only a licensed attorney is allowed to supervise the property transfer. In other states, a title insurance agent is allowed to manage the settlement.

USDA Credit Score Requirements

The lender will obtain a credit report from each of the three major credit bureaus. Each credit company's information will be combined into a single unified credit report. The lender gets the most detailed information and credit score from the tri-merged report. READ MORE: Chapter 10: credit analysis

USDA Flood Insurance Requirements

The lender will check to see if the property is in a flood zone. The need for flood certification is self-evident. If the home was severely destroyed in a flood, the borrowers are unlikely to continue making payments on the mortgage. The lender will want flood insurance to protect their investment if the property is located in a flood-prone area. READ MORE: Chapter 3: escrow, taxes, and insurance

Lender Fees

For the origination and processing of the loan application, lenders will charge the buyer fees. Lender costs are referred to as origination or discount points. Lenders frequently use mortgage discount points to lower interest rates.

Title Search

You and the lender need to be certain that all real estate taxes have been paid in full and that the property title is free and clear of liens or encumbrances. The title search investigates the ownership chain.

Title Insurance – The cost varies by state

When it comes to real estate purchases, a multitude of complications might arise. Insurance for automobiles and title insurance are similar. If there is an accident, the auto insurance provider will pay the claim. If there is a problem with the chain of ownership or some other peril, the title insurance firm pays the offended party.

Recording Fees – the deed, note, and mortgage (also known as a deed of trust)

Following the signing of all documents and handshakes all around, the deed, mortgage, and promissory note will be "registered" or recorded at the county recorder's office. The county recorder maintains records of all transactions and makes the documents accessible to the public.

Transfer Tax / deed stamps/excise tax/recordation fees

There is a transfer tax in the majority of states and counties. Consider the tax to be a real estate-specific sales tax. Although transfer taxes are referred to by a variety of names, they all produce income for the government. Additionally, the borrower may be assessed recordation fees. The loan amount is used to determine the recordation cost.

Additional services that may be necessary or requested include the following:

Home inspection: Home inspections are not required by the USDA or lenders.

Home warranty: Home warranties are not required by the lender.

USDA Termite Inspection Requirements

You may be surprised to learn that the USDA does not require termite/pest inspections unless the appraiser, lender, inspector, or state law requires the property is clear of active infestation. It should be noted that any previous (or current) damage from wood boring insects require repair. READ MORE: Chapter 12: Property And Appraisal Requirements

Survey Requirement

The USDA does not require a property survey, however, the title insurance, lender or settlement company may require a property survey to establish the exact property boundaries.

Prepaid Expenses: Real estate taxes and homeowner's insurance escrow

The lender, with the help of the settlement company will determine how many tax and insurance dollars need to be set aside in an escrow account. The term escrow is another name for savings account. For example, let's say you close on November 1st and the real estate tax bill is due February 1st of the following year. Because the tax payment date is so close to the settlement date, the lender will require that the escrow company withhold enough money to make the upcoming real estate tax payment.

Conclusion

In conclusion, the answer to the question of whether or not the seller can pay your closing costs on a USDA loan is yes, in most cases. The best way to find out for sure is to speak with a mortgage lender. If you are looking to purchase a home using a USDA loan, be sure to ask your mortgage lender about the possibility of the seller paying your closing costs.