The USDA loan provides you with 100% financing on a rural home. You may be surprised to learn what the USDA considers rural, though. It’s not always homes out in the middle of cornfields. They are often neighborhoods right outside of the city lines that have low population that qualify. As with any mortgage, though, it’s not just the down payment you have to worry about. You also have to figure out how you will pay for the closing costs.
What if you don’t have the money to pay the USDA closing costs at the closing?
The good news is that you may be able to wrap the fees into your USDA loan. The bad news is that it only applies to certain borrowers.
What’s the Appraised Value?
You can wrap your closing costs into your USDA loan if the appraised value of the home is higher than the purchase price. Let’s say you bid $150,000 on a home and the appraiser comes back and says the home is worth $160,000. That leaves you with $10,000 to spend on closing costs. In other words, you can take a loan amount of up to $160,000 if necessary.
Now if the appraised value came back at $154,000, you would only be able to wrap $4,000 of your closing costs into your loan. You are unable to take a loan amount that is higher than the appraised value. You would have to come up with another way to come up with the remaining closing costs.
Other Ways to Get Help With Closing Costs
If you can’t wrap your closing costs into the loan, you have a few other ways that you can get help paying them.
- The seller can help – If the seller is willing to credit you money at the closing, you can use that money towards your closing costs. While it’s not common, some sellers are motivated enough to sell their home that they agree to credit you some money to help you get the loan to the closing table.
- The lender can help – You can also opt for what’s called lender paid closing costs. Some lenders will cover all of your closing costs in exchange for a higher interest rate. Usually, you will pay 0.5% higher interest rate in exchange for the lender paid closing costs.
- Family members can help – You can also receive gift funds from family members. In order for this to work, you must have a signed gift letter from the donor stating that the funds are a gift and that they are not a loan.
You have several ways to get help with your closing costs. The easiest way is to wrap them into your loan. If that doesn’t work, you’ll have to explore your other options which may include asking the seller, the lender, or your family members to help you pay your closing costs on a USDA loan.