Seller Closing Costs for 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.
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.
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.
SOURCE:
Single Family Housing Guaranteed Loan Program (SFHGLP)
Chapter 12: Property And Appraisal Requirements
Chapter 3: escrow, taxes, and insurance
Recommended Reading
- Are Usda Loans Good?
- Calculate Your USDA Loan with Our Easy-to-Use Calculator
- Can USDA Loans Be Used for Manufactured Homes?