How to roll closing costs into your USDA Loan

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A USDA loan is one of the few loans that will allow a homebuyer to finance their closing costs into their mortgage loan. There are two main ways to have your closing costs paid thru your loan closing. The first way would be to finance closing costs into your loan amount. In order to do this your home must be worth more than the purchase price of your house. The value of your home is determined by the appraised value of your home. A licensed appraiser will inspect your home and will determine a value based off the condition of your home, and based off of homes in your neighborhood that have recently sold. If an appraiser determines the value of your home is greater than the purchase price then you will be able to use the difference to pay for closing costs. For example, if you have a purchase agreement on a home for $100,000 and the appraiser values your home at $105,000 you may use the difference ($5,000) to pay closing costs.


Another example of how to roll closing costs into a USDA loan would be to have the seller pay for closing costs thru something called seller concessions, or seller credits. A seller concession is an agreement that the buyer and sellers make in which the seller covers part, or all of the closing costs. If a seller has an agreement to sell their home for $100,000 and agrees to pay 4% (or $4,000) in seller concessions then the seller will net from the proceeds of the sale of the home $96,000 ($100,000 minus $4,000)


With a USDA loan it is often better to use the second example as often an appraiser will appraise a home for just the purchase price, even if the home may have more value than the purchase price it is not an uncommon practice for the appraiser to only give the value of the purchase price to a home. There are many various reasons an appraiser may do this, however the important thing to know is that it may happen, and if your wish is to have a USDA loan with no money out of your pocket then it may be best to obtain seller concessions as part of your purchase agreement.


To learn more about closing costs, and USDA loans guidelines visit the USDA guideline section at or give our loan agents a call at 855-900-USDA


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