Why USDA Loans
 

USDA Loan Closing Cost Breakdown: What Homebuyers Need to Know 
When purchasing a home with a USDA loan, many buyers focus on the zero down payment benefit but may not fully understand the closing costs associated with the loan. While USDA loans make homeownership more affordable, borrowers should be prepared for additional expenses during the home-buying process. This guide will break down the USDA loan closing costs, explain how they compare to other loan programs, and explore ways to reduce or cover these costs.

 
1. What Are USDA Loan Closing Costs? 
Closing costs are the fees and expenses required to finalize a mortgage. For USDA loans, these typically range from 2% to 6% of the home’s purchase price. The exact amount varies based on location, lender fees, and other factors. 

2. Common USDA Loan Closing Costs 
Here’s a breakdown of the typical closing costs associated with a USDA loan: 
 

USDA Guarantee Fee – This one-time fee is 1% of the loan amount and is required for all USDA loans. It can be rolled into the loan to reduce out-of-pocket expenses. 

• Loan Origination Fee – Charged by lenders, this fee is typically 0.5% to 1% of the loan amount.
• Appraisal Fee – USDA requires an appraisal to determine the home’s value, costing $400 to $600 on average.
• Credit Report Fee – Lenders charge around $25 to $50 to pull the borrower’s credit history.
• Title Insurance & Search Fees – These fees protect both the lender and buyer, averaging $500 to $1,500 depending on the home’s location.
• Recording Fees & Transfer Taxes – These costs vary by state but typically range from $100 to $500.
• Homeowners Insurance – Most lenders require the first year of homeowners insurance to be paid upfront, costing $600 to $1,200 per year.
• Escrow & Prepaid Property Taxes – Borrowers may need to prepay a portion of their property taxes, which varies by location.

3. How USDA Loan Closing Costs Compare to Other Loans
USDA loan closing costs are similar to conventional and FHA loans, but with key differences:

• Lower Upfront Costs Than FHA Loans – FHA loans require a 1.75% upfront mortgage insurance premium, while USDA loans only require a 1% guarantee fee.
• Comparable to Conventional Loans – While both have similar closing costs, conventional loans typically require a higher down payment, making USDA loans more affordable overall.
   

4. Ways to Reduce or Cover USDA Closing Costs
One of the benefits of USDA loans is the flexibility in covering closing costs. Here’s how buyers can lower their expenses:

• Roll Closing Costs Into the Loan – If the home appraises for more than the purchase price, buyers may roll some or all of their closing costs into the loan.
• Seller Concessions – USDA allows sellers to contribute up to 6% of the home's purchase price toward closing costs.
• Lender Credits – Some lenders offer credits in exchange for a slightly higher interest rate, reducing upfront costs.
• Down Payment Assistance Programs – Buyers may qualify for grants or assistance programs to help cover expenses.
   

5. Are USDA Loan Closing Costs Worth It?
Despite these costs, USDA loans remain one of the most affordable mortgage options due to the zero down payment requirement, low interest rates, and reduced mortgage insurance costs. Understanding closing costs upfront helps buyers budget accordingly and take advantage of available cost-saving options.

Get Help with Your USDA Loan Today!
At USDAHomeBuyer.com, we specialize in helping buyers navigate the USDA loan process, including finding ways to reduce closing costs. Fill out our quick eligibility form today to learn more about USDA loan benefits and financing options!