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How Much Does It Cost to Close on My Home Purchase?

Everyone who has navigated the home buying process and secured a mortgage loan has been subjected to closing costs. Whether you’re a veteran home buyer in need of a refresher, or you’re learning about them for the first time, here’s what you need to know. Closing costs are the fees associated with buying your new home, costs you’ll (typically) cover out of pocket or roll into your mortgage as you sign the contract and close on a new home. Here’s a snapshot of what to expect so you don’t get caught unprepared.

How Much?

While it depends on several factors, your closing costs will generally end up being between 1.5% to 6% of the home’s purchase price, depending on the home’s location and some of the supporting services you elect as well. Your mortgage lender can also influence the amount of your final balance as well. They are required to provide you with a detailed loan estimate within three days of applying for a loan, but you can always ask for a sneak preview before even settling on a specific subject property

Before your closing, it’s extremely helpful to know just what this all entails in order to avoid that unpleasant sticker shock feeling. Make sure you schedule time with your real estate team and your mortgage loan officer to go over the details of your closing costs.

If you spot something that doesn’t look right, take the time to ask for more information. It’s YOUR money, after all, and you deserve to know exactly what you’re paying for. Scams aren’t very common, but they do happen

What Are They For?

Closing costs might be inescapable, but have you ever wondered exactly where that money is really going? For example, did you know that a lot of your fees don’t actually go to your mortgage company, but to third-party agencies, local government, and taxes? Check out this simple breakdown of some of the most common closing costs and how much they may run you.

It’s always wise to go into negotiations armed with as much knowledge as possible. Thanks to our friends at Baird & Warner and Zillow, here are a few closing costs to watch out for, along with their Chicago price point. 

→ These may not all be applicable in your transaction, and we’ve included a couple of costs more typically assessed to the seller – just in case.

Attorney’s Fees 

Attorneys are hugely important for closing a home sale in Illinois; it is customary that a lawyer reviews the purchase agreement before it is finalized, during what is known as the attorney review process. Real estate attorneys typically charge a flat fee for these services, and you can expect to pay between $400 – $1,000 in attorney’s fees for legal help, contract negotiation, and more. Most Illinois lawyers who specialize in this area are very upfront about their rates, and they expect to be asked “what’s your fee.”.

Loan Application and Origination 

Your mortgage company will generally require origination fees, which may include an application fee, underwriting fees, processing fees, and document preparation fees. If you are paying any “points” or “discount points” (an up-front fee to lower your loan’s interest rate), you will typically find those under the banner of “origination fees” as well. An origination fee can be 0.5% – 1% of the loan total, but I’m happy to share that our origination fees at Key Mortgage are commonly well lower than that.  

Inspection and Appraisal Fees 

The appraisal fee is typically $300-$600. It will be on the low end for condos and could exceed $600 for a multi-unit or pre-construction appraisal. A qualified and licensed home appraiser, hired by the mortgage lender, and assigned by the appraisal company from a pool of appraisers, will perform a detailed review of the property and in-depth market research to determine the true market value.

A home inspection alerts the buyer and seller to any serious issues with the home before the sale is complete, such as structural damage, faulty electrical work, or plumbing problems. Who pays the inspector can vary depending on the situation, but the cost is generally $375 – $700 for the average 2,000-square-foot home

Your appraisal fee will appear on your loan estimate and closing disclosure. In Illinois, your inspector will likely charge you at the time of your inspection, and thus your lender may never see those costs (nor will they appear on the aforementioned disclosures.)

Credit Report 

Your credit score is crucial when it comes to determining your purchasing power, but the reports from free online sites don’t carry much weight for mortgage loan brokers. Lenders have access to the deeper tri-merge credit report with a deeper look at your credit history, and this costs around $60-90.

Closing Fee or Escrow Fee 

These are paid to the title company, escrow company, or real estate attorneys for conducting the closing. These fees vary based on the purchase price of the home It’s usually calculated at a base starting rate (maybe $1400 on a $200,000 purchase), plus an incremental fee ($50-$100)  per additional $50,000 of the purchase price on properties over $200,000.

Survey Fee 

 While most single-family home and townhome purchase contracts will require a property survey, if you’re buying a condominium, you may be able to avoid this cost. A survey company will verify all of your property lines as well as things like shared fences, easements, and water features. Single-family home survey fees in Chicago should cost between $475 and $1,000, depending on the size of the property.

Lender’s Policy Title Insurance 

This insurance assures the lender that you own the home and that the terms of the mortgage will be valid. The value of the policy is calculated from your purchase price and other factors, and the actual price might vary from a few hundred dollars to a few thousand.

Owner’s Policy Title Insurance 

The great news, at least for folks buying a home in Illinois (or Wisconsin), the seller is typically responsible for the cost of the owner’s title policy, on behalf of the buyer. In a similar vein to lender’s policy title insurance, this policy protects you in the circumstance that someone challenges your right to ownership of the home. This is calculated from your purchase price based on a common rate table. You should count on paying around $1,130 for properties priced up to $100,000.

Homeowners’ Insurance 

Homeowner’s insurance covers a variety of potential damages to your home, and most mortgage lenders expect you to deposit payment of one year’s worth of premiums in advance during the closing. For a single-family home, you can estimate in the neighborhood of $100-150 per month for a typical home purchase price. If you’re purchasing a condo, your policy covers the contents of your home (your building will have a policy for the structure), and the policy is generally less than half of that of a single-family home. 

Escrow Deposit for Property Taxes 

During the closing process, it’s traditional to deposit two or three months of property taxes into your escrow account, held by your closing company. The amount will be listed on your closing documents and can vary greatly depending on your county. Property taxes go to support your local school district and infrastructure, and they’re considered a necessary part of owning a home. 

On the flip side, something that will likely be missing from your loan estimate (by design) and initial closing disclosure are property tax prorations. In Illinois property taxes are paid in arrears, meaning your next tax bill will come during your ownership but will cover months that the prior owner lived in the home. This bill belongs to you, despite being the new owner. To compensate for this, the seller will provide a proration of estimated tax liability that will be credited to you at the closing table. This is generally a nice chunk of change to offset your out-of-pocket on the day of closing. 

Processing, Underwriting, and Miscellaneous Fees

Everyone wants their piece of the pie, so there are many other fees you might see listed under loan costs, such as document preparation fees, processing fees, underwriting fees, research fees, verification, recording, wire transfer fees, and policy registrations. That’s just the cost of doing business. Homeowners’ association or condominium owners’ association fees can also be included here. 

There’s a lot to consider in a real estate transaction, but you’re not expected to go it alone. For a better sense of what these fees will look like for your individual circumstances in the Chicago marketplace, reach out today! My team of professionals and I will guide you through every step of the journey, from the first look at your finances and exciting open houses to that thrilling moment when you finally receive the key to your new home. 

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