Many new home buyers hear this term thrown around but don’t really pay much attention to it until it’s almost time to close. It’s important to keep these costs in mind early on in the process so you can make sure you will either a.) have enough money to close, or b.) try to get a credit from the seller.
$250,000 is a fairly average price in the Chicago housing market, so we’ll use it as a basis for this example. These figures are for example only and many of the fees will vary based on your chosen attorney, loan officer, etc. Numbers that we chose are around the industry average in the Chicago market.
Closing Costs Itemized
Loan Origination Fee/ Loan Discount – sometimes referred to as “Points”: $0
Lender Fees: $1000
Title Company Charges – (seller’s choice): $2000
City of Chicago Transfer Tax [$7.50 for every $1000 purchased]: $1875
State of Illinois: $3
Total for a purchase of $250k: $5478
Pre-Paid and Reserve Items
Pre-paying mortgage interest for the remaining days of the month
Pre-paying homeowners insurance policy one year in advance
Setting up Tax and Insurance escrow accounts
Tax Credit from seller to buyer (based on what percentage of the taxes were already paid by the seller)
What About Closing Cost Credits?
Sometimes a buyer has enough credit and money to qualify for a loan, but has little left to pay for closing costs. With any type of home loan a buyer has the option of negotiating a closing cost credit, which requires the seller to pay some or all of the closing costs. This is the only type of credit lenders are allowing (at the time this article was written), however, there are limits to how much a buyer can ask for. These limits are based on the type of loan the buyer is using to purchase the home.
Note: The closing cost credits may never exceed the maximums for the given loan type and if the closing costs are lower than the negotiated amount, the buyer cannot “keep the change.
- For a Conventional Loan (or a Conforming Primary Loan) with less than 10% down, the buyer may ask for up to 3% of the purchase price.
- For a Conventional Loan with 10%-25% down, the buyer may ask for up to 6% of the purchase price.
- For a Conventional Loan with over 25% down the buyer may ask for up to 9% of the purchase price.
- For an FHA Loan that requires a minimum of 3.5% down, the buyer may ask for 6% of the purchase price.
- For a Conforming Investment Loan regardless of the down payment, the buyer may ask for up to 2% of the purchase price.
Your Chicago real estate agent can provide you with further resources and information concerning the closing costs associated with your individual transaction.