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Can USDA Loans Cover Closing Costs?
- dchapman70
- Jul 10
- 3 min read
Buying a home with zero down payment is one of the biggest benefits of a USDA loan. But what about closing costs?
At Local Mortgage, we’re often asked, “Can I finance my USDA closing costs too?” The good news is—yes, in many cases you can. With the right setup, you can get into a home with little to no money out of pocket.
In this blog, we’ll break down everything you need to know about USDA-financed closing costs for 2025 and how to take full advantage of this powerful loan option.
What Are Closing Costs?
Closing costs are the fees and expenses associated with finalizing your home purchase. These typically include:
Appraisal and inspection fees
Loan origination and underwriting fees
Title insurance
Escrow and recording fees
Prepaid taxes and homeowners insurance
In the Memphis area, closing costs generally range from 2% to 5% of the home’s purchase price.
Can You Finance Closing Costs with a USDA Loan?
Yes—but there’s a catch.
You can finance your USDA closing costs only if the home appraises for more than the purchase price. The USDA will allow you to roll eligible closing costs into your loan, but only up to the appraised value.
Example:
Purchase Price: $250,000
Appraised Value: $255,000
You can finance up to $5,000 in closing costs.
At Local Mortgage, we work closely with your appraiser and agent to help you take advantage of this when the numbers line up.
Other Ways to Cover USDA Closing Costs
If the home doesn’t appraise high enough to roll in costs, here are other USDA-approved options:
✅ Seller Concessions
The USDA allows sellers to contribute up to 6% of the sales price toward your closing costs.
Tip: In competitive Memphis suburbs like Oakland or Atoka, we’ll help your agent negotiate seller-paid costs up front.
✅ Lender Credits
You can choose a slightly higher interest rate in exchange for a lender credit, which covers part or all of your closing costs.
This can be a great option if cash is tight but you still want to close.
✅ Gift Funds
USDA also allows gift funds from family or approved sources to cover closing costs and prepaid items.
What USDA Closing Costs Can Be Financed or Paid?
You can use financing or seller contributions to cover most costs, including:
Appraisal and credit report
Title and escrow fees
Lender fees and prepaid interest
Property taxes and insurance escrows
USDA guarantee fee (1% of the loan amount)
How We Help Memphis Buyers Minimize Out-of-Pocket Costs
At Local Mortgage, we specialize in USDA home loans and work with buyers across Shelby, Tipton, and Fayette counties to create low- or no-cash-to-close loan scenarios.
Whether you're buying in Arlington, Millington, or the outskirts of Bartlett, we’ll:
Help estimate your closing costs early
Check if your home appraises high enough to finance costs
Coordinate with your agent to negotiate seller concessions
Explore lender credit options to keep more money in your pocket
Final Thoughts
Closing costs don’t have to be a roadblock to buying your first home. With a USDA loan, you can potentially finance those costs into your loan or have them covered through seller concessions or lender assistance.
At Local Mortgage in Memphis, TN, we’re here to help you structure the best USDA loan possible—with the least amount due at the closing table.
How I Can Help You
When it comes time to purchase a home or refinance an existing loan, I want to help you! Hopefully articles like this give you good information and a better understanding of the mortgage world but let me use my experience and expertise to help you with your particular situation.
I tell my clients and referral partners that a mortgage transaction starts with a simple conversation. Let’s talk about your financial situation, budget, and goals so that I can help you determine the best solution for you. During a 10-minute informal conversation, we can get you on the right path as it relates to a home purchase or mortgage refinance.
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