Thursday, April 19, 2012 - Article by: Brian Mayer - Equity Resources -
There are at least 6 ways to purchase a house with a USDA Loan and not pay any closing costs. Some of these are little known and others are more common. Often it comes down to the buyers goals when determining if and how closing costs are paid for.
Only in new construction is it commonplace to have the seller contribute ALL the closing costs. There are so many factors that can change the closing costs its impossible to know an exact dollar amount until there is an approved buyer, contract, settlement date, title company, and locked interest rate. Even then things can change!
#1 Seller Pays Them - With a USDA Loan the seller can contribute up to 6% towards closing costs. This is almost always enough unless the loan amount is under 200k or taxes are extremely high.
#2 Offer More And Get It Back From Seller - Recently there have been little to no issues getting appraisals especially with all the short sale and foreclosures taking place. If the seller is unwilling to pay all of them increase your offer and ask the seller to credit them back to you on the HUD. The seller will net the same amount and as long as the house can appraise for the new amount this is very efficient.
#3 Roll Them In - USDA Loans are unique in that you can roll the closing costs into the appraised value. This differs from #2 in that its not a seller contribution and you have to wait until after the appraisal to know if it will work and for how much.
#4 Gift From Family Or Friend - You cant take a loan out or borrow money from anyone to pay the closing but you are allowed to receive a gift from a family member or documented friend.
#5 Lender Credit - Each interest rate either costs you money or pays you back money that can be used to cover closing costs. As an example if the rate of 3.625% cost you $250 and 4% paid you $5000 you would have to decide where your priorities are. It helps to know the difference in payment and how long it would take to make up the difference.
#6 Combination - Not like fries and a Coke but combining the different options to help you reach your goals. For instance using a lender credit with a gift from a family member would be allowed.
<img alt="" />As you can see not only are USDA Loans true no money down loans, they can be no up front cost loans. Although a earnest money deposit is commonplace it is not required and with a USDA loan the buyers are entitled to receive their earnest money deposit back at the table!
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