USDA home loans, offered by the United States Department of Agriculture, are designed to help eligible buyers in rural and suburban areas. Here’s how closing costs work with these types of loans:

1. Lender fees: These are fees charged by the lender for services like loan origination, underwriting, and processing. They can vary from lender to lender, so it’s a good idea to shop around and compare different lenders’ fees.
2. Third-party fees: These are fees for services provided by third parties involved in the loan process. Examples can include the appraisal fee, title search and insurance, survey costs, recording fees, and more.
3. Prepaid and escrow items: These are costs related to homeowners insurance, property taxes, and possibly private mortgage insurance (PMI) if your down payment is less than 20% of the home’s value. Some of these costs will be prorated and paid at closing, while others will be set up in an escrow account, which you’ll contribute to monthly so that when these expenses are due, the money will already be there.

USDA loans often offer the possibility to finance all or part of these closing costs into the loan under certain conditions, in order to reduce out-of-pocket expenses at closing. But keep in mind that doing so will increase your total loan balance and possibly your monthly payments.

To understand the exact amount and details of your closing costs, you will receive a “Loan Estimate” form from your lender after you apply for the loan. This form gives you an estimate of what your closing costs will be. Later in the process, you’ll receive a “Closing Disclosure” form, which will have the final amounts. You should compare these two documents and ask your lender about any significant differences.

Specifics of USDA loan guidelines and fees may change, so it’s always a good idea to check the current guidelines or speak with one of our  qualified USDA lending professionals.