You have to pay closing costs on almost every mortgage you take out, unless you are able to negotiate a no-closing-cost loan with your lender. That being said, it pays to be informed about the costs you are being charged and which charges you can negotiate and/or shop around for to get the best deal. USDA loans are meant to help people that are in a lower income bracket and are unable to secure financing from any other source, but that does not mean that there are not USDA closing costs – everyone must pay. Here are the most common fees you will face on any USDA loan.
USDA closing costs are similar to those of any other loan. Every fee charged on your loan is shown on the settlement document, which you receive at least 3 business days before your closing. The fees are very specific, some of which pertain strictly to USDA loans and others that do not.
USDA Funding Fee
The one USDA charge you can expect to see on any USDA loan no matter which lender you use is the funding fee. This fee gets charged up front and can be either paid in cash at the closing or rolled into the loan amount if you have room between the contracted sales price and the actual value of the home. Right now, the fee is 2.75 percent of your loan amount. So, for example, on a $100,000 loan, you would pay $2,750 as a funding fee.
The funding fee is set in stone and non-negotiable. The USDA charges this fee on every loan. You can shop with 10 different lenders and you will get the same answer regarding this fee. Right now it equals 2.75 percent of the loan you take out. If you take out a $150,000 loan, you would pay $4,125 up front for the funding fee. You might be able to roll it into your loan amount if you purchase the home for less than the appraised value comes back at, but if the funding fee would put your LTV over 100%, you would have to pay it in cash at the closing.
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Other USDA Closing Costs
The upfront funding fee is the only closing cost you will see that is non-negotiable. The other fees are fairly standard for any loan and most of them are flexible. The fees do not come from the USDA, but the lender that funds the loan, the title company that issues the title insurance and closes the loan, and any other third-parties that play a role in the loan.
Generally, most lenders charge an origination fee on the USDA loans because of the low profit they make on them. You can expect to pay between 1 and 2 percent of the loan amount in an origination fee depending on your credit score and other compensating factors. In addition, you will likely pay some or all of the following closing costs:
- Lender charged origination fee – The lender has to do work the minute you provide them with an application. They have to process the paperwork, verify everything, and determine your risk level. Because of this, they often charge origination fees upfront in order to ensure that they make a profit. This fee is typically no more than 1 to 2 percent of the loan amount.
- Other lender fees – The lender will also typically charge specific fees that include a processing and underwriting fee to cover the costs of performing these tasks on your loan.
- Third-Party fees – There are multiple third parties included in your loan. A few of them include credit reporting agencies, appraisers, and notaries. The lender is allowed to charge you only the amount that each servicer charges them to do the work on your loan. For example, if a credit report cost $25, the lender could only charge you $25 to reimburse them for the cost of the report.
- Title company fees – The title company plays an integral role in the processing of your loan. They help to determine that your title is free and clear of any liens as well as provides the title insurance and closes on your loan. They will charge fees that include title search, title insurance premium, and a closing fee.
The USDA does not allow lenders to charge any unnecessary or out of the ordinary charges, so you will likely find similar costs at each USDA lender that you talk to. The USDA closing costs are usually not out of hand since USDA loans are meant to help those that have trouble qualifying for any other loan type, but you can try to negotiate certain fees if you are unable to bring enough cash to the closing. Just make sure that you negotiate the fees up front in order to ensure that your loan closes on time.
These are just a sampling of what most lenders charge – remember that every lender has their own way of running things. If you think one lender’s charges are out of sync with what you expected to pay, you can shop around with other lenders to determine if it is normal for your area and to make sure that you are getting the best deal.
