Zero Cash to Close
One of the nice things about the USDA loan program is the option to bring little or no money to closing. Since the loan offers 100% financing of the sales price and guarantee fee, the borrower simply needs to cover the settlement costs. There are at least three ways to accomplish that goal: one is to finance the settlement costs shown in example 1 below, another way is to accept a higher interest rate in exchange for a lender credit shown in example 2, and yet another is to write a seller concession into the real estate contract shown in example 3.
Example 1 - Finance the Settlement Costs
In example 1, the lender would increase the loan to cover the settlement costs. This would work if the sales price is $300,000 and the appraised value is at least $303,053, which is perhaps a realistic scenario in the current buyer's market.
Example 2 - Premium Pricing for Lender Credit
In example 2, the borrower would accept a higher interest rate in order to get a higher lender credit. The interest rate would increase from 3.50% to 3.875% resulting in an additional $5,075.09 credit. The premium pricing would offer sufficient credit to cover the closing costs and also return the earnest money deposit.
Example 3 - Seller Concession
In example 3, the borrower would take advantage of a seller to cover the settlement costs.
