Closing costs are a part of taking out a mortgage – every lender charges them, but certain programs only allow particular closing costs. Before you take out a new loan with the USDA, you should learn what borrower paid closing costs are allowed so you know what you can and cannot be charged.
Fees Tied into the Loan
There are certain fees that are charged in order to get a loan. These fees have a direct impact on your ability to secure financing. A sample of these fees includes:
- Guarantee fee from the USDA
- Appraisal fee to determine the value of the home
- Home ownership counseling fees
- Title search fees to determine there are no liens on the property
- Insurance fees
- Tax monitoring fees
There are also certain fees that lenders charge for the convenience of the loan as well as for the work they have to complete to get your loan closed. The complexity of your loan will help to determine the amount of these costs that you must pay. These fees include:
- Origination fee
- Discount fee
These fees are charged when there is extra scrutiny that needs to be used on your loan because of certain unique situations as well as when you want to pay to lower your interest rate. Typically for every 1 point you pay in a discount fee, your interest rate can be reduced 0.5%.
Borrower Paid Closing Costs
In addition, there are closing costs that directly tie into closing your loan. These charges must be reasonable and customary for the area. They must also be within the same limits as the closing costs for any other type of loan, including a conventional and FHA loan. A few of the closing costs that can be charged include:
- Title insurance
- Settlement costs
- Courier fees
- Wire fees
- Recording fees
- Escrow fees
Getting Help with Closing Costs
The best news is that if you cannot afford the closing costs charged on your USDA loan, you have options to help them get paid. You can receive a gift from a family member or employer to help you pay the costs. You can also accept a seller’s concession, which means the seller pays the closing costs for you in exchange for you agreeing to a higher purchase price to account for the help with the closing costs.
Negotiate your Closing Costs
If you cannot get help with your closing costs and cannot afford them, you can negotiate your closing costs with your lender. Sometimes lenders are willing to slightly adjust the interest rate in exchange for them paying the closing costs for you. This helps to make the loan more affordable upfront and enables you to pay the higher interest rate over the life of the loan, which you can refinance in the future and secure a lower rate.
Every lender will charge different fees, so make sure to shop around. This is especially important if your loan has any special circumstances or you have a credit score below 620. Lenders often look at these loans as extra risky and will charge accordingly in order to make up for the risk of default that you pose. By shopping around with various USDA approved lenders you can see what charges are normal and which are being exaggerated as a result of your loan profile.
The borrower paid closing costs limitations on the USDA loan are similar to those of any other loan program in an effort to keep all loan programs similar and affordable for buyers throughout the country.