How to Calculate Closing Costs on a USDA Loan

Buying a home is an exciting time, but it also involves a lot of costs upfront. When getting a USDA loan, it’s important to understand all the fees and expenses involved so you can budget properly. In this article, I’ll explain what closing costs are, the specific fees with a USDA loan, and provide a step-by-step guide to calculating your total estimated closing costs.

What Are Closing Costs?

Closing costs are the fees charged to finalize and “close” on a mortgage loan. They are paid at closing, which is the final step of the home buying process when you sign all the paperwork to officially own the home.

Closing costs typically range from 2-5% of the total mortgage loan amount. So on a $200,000 home loan, expect to pay $4,000-$10,000 in closing fees.

These costs are in addition to your down payment. However, the great thing about USDA loans is that no down payment is required. But closing costs still apply.

Closing costs fall into two main categories

• Fees to obtain the mortgage – These include lender origination fees, application fees, underwriting fees, etc.

• Prepaids and escrow – Costs like property taxes, homeowners insurance, and prepaid interest.

Now let’s look at the specifics of USDA loan closing costs

USDA Loan Fees and Closing Costs

While closing costs vary by lender and location, here are the main fees borrowers can expect with a USDA mortgage:

• Origination fee – Upfront fee charged by the lender, usually 1% of the loan amount

• Underwriting fee – Fee to process the loan application, typically a few hundred dollars

• Appraisal fee – Cost of the home appraisal, generally $400-$800

• Credit report fee – Covers pulling your credit reports, around $50 per person

• USDA guarantee fee – Upfront fee equal to 1% of the loan, can be financed into loan

• USDA annual fee – Yearly mortgage insurance cost of 0.35% of loan amount

• Title fee – Covers title search and insurance, often a few hundred dollars

• Recording fees – Charge to file your deed with the county, less than $100

• Prepaids – Includes property taxes, homeowner’s insurance, and potentially HOA fees

Now let’s go through how to estimate your total closing costs.

How to Calculate Estimated Closing Costs on a USDA Loan

Follow these steps to get an accurate estimate of your closing costs with a USDA mortgage:

1. Determine your loan amount

Your loan amount will be the home purchase price minus any down payment you choose to make.

For example, if the purchase price is $250,000 and you put 5% down ($12,500), your loan amount would be $237,500.

2. Estimate lender origination fee

The origination fee is usually around 1% of the loan amount. In our example, 1% of $237,500 is $2,375.

3. Calculate USDA guarantee fee

This upfront fee is also 1% of the loan amount, so another $2,375 in this example.

4. Estimate other lender fees

The underwriting fee, appraisal fee, and credit report fee will generally total $1,000-$1,500.

5. Look up title and recording fees

These vary by county but often total a few hundred dollars.

6. Get quotes on prepaids

Contact your insurance agent and county tax assessor to estimate property taxes and homeowners insurance. Multiply those monthly costs by the required number of months prepaid the lender requires. Also account for any HOA fees if applicable.

7. Add up all costs

In our example, the total closing costs would be approximately:

• Origination fee: $2,375
• USDA guarantee fee: $2,375
• Other lender fees: $1,250
• Title and recording charges: $500
• Prepaid costs: $2,500 (estimated)

Total closing costs: $9,000

As you can see, closing costs on a USDA loan can range from $4,000-$10,000 typically. To reduce your out-of-pocket expense, ask your lender about receiving seller credits or lender credits to cover some of these costs.

Tips for Paying Closing Costs

If you don’t have cash on hand to pay closing costs, here are some options:

• Negotiate with the seller to pay some of your closing costs
• See if the lender offers lender credits to offset fees
• Take out a slightly higher loan amount to cover costs
• Receive gift funds from a relative

Shopping around with multiple lenders is also key to get the best rates and fees. Be sure to compare fee estimates across 2-3 lenders. This can save you hundreds or thousands in lower closing costs.

The Bottom Line

When getting approved for a USDA home loan, make sure to account for the various closing costs you’ll owe at closing. While exact fees depend on your lender, location, and loan details, you can expect to pay around 2-5% of your mortgage amount in closing costs and prepaids.

Following the steps above will give you an accurate estimate so you can budget accordingly. Shop lenders, negotiate credits, and explore all options to keep your out-of-pocket costs down. With a solid understanding of what’s involved, you can move forward with confidence knowing what to expect at the closing table.