As a mortgage lender who lives in Chicago’s Bowmanville neighborhood, I was thinking about the most common questions I get asked by people purchasing a new home. Closing costs is a topic very high on that list and I wanted this to be the first of many posts on Maggie Finegan’s real estate blog.
Most people know to plan for the down payment when budgeting for a new home purchase but some are often surprised at the additional costs involved in the transaction. These fees will vary depending on the location of the property as well as the loan program. For example, the fees associated with an FHA loan are greater than a conventional loan and the transfer tax is higher in the City of Chicago than it is in Hoffman Estates. Below are costs to expect when purchasing a new home.
The majority of people who purchase a home are not paying cash. For those who need a mortgage, there will be fees associated in obtaining one. These fees can range greatly so it is important to shop for the best deal. Beware of a lender who tells you there are no fees! That may mean there is possibly a lower interest rate loan available.
Almost all lenders will require an appraisal and some may require two depending on the circumstance. There are a couple of programs available today that do not require an appraisal but that will be determined based on the type of property you are buying (Fannie Mae’s HomePath is an example)
Title insurance is meant to protect the owners’ and lenders’ interest in real estate against a loss due to title defects. If someone from long ago comes back and claims they own the property that you have just purchased, title insurance is there to protect your ownership interest. The title company is responsible for dealing with and managing that persons’ claim so you don’t have to.
City and Village Transfer Taxes
Most cities and villages in the Chicago area have some sort of tax they assess on the transfer of real estate. Many of the villages will even require the property pass an inspection by the village to obtain the necessary transfer stamps. These transfer taxes can be quite hefty. In the City of Chicago, for example, the transfer tax the buyer pays is $7.50 per $1,000. So, if the purchase price is $200,000, the tax paid by the buyer to the City of Chicago is $1,500.
Illinois is an attorney state, which means you must have an attorney to close on your purchase. Having a good attorney is worth every penny and can help save you from paying unexpected costs in the transaction. Remember, your realtor and mortgage adviser work with real estate attorneys all day and they know who is good and who isn’t. Ask them for a referral if you do not have an attorney you are already working with.
You will need to pay for one full year of homeowner’s insurance coverage. This is an item you can shop around for in order to get a good deal. If you are purchasing a single family home, the policy coverage must be, at a minimum, equal to the loan amount. If you are purchasing a condo or town home, you will need what is called an HO6 policy. The policy coverage must be, at a minimum, equal to 20% of the appraised value.
This list is an overview of the costs to expect when purchasing a new home. These are costs to plan for in addition to the down payment. A safe rule of thumb is 2% of the purchase price as long as you are getting a conventional loan. There are ways your lender can provide you with a credit to cover some of the closing costs but it often involves a higher interest rate. You can also ask the seller to pay a portion of your closing costs. Your realtor can negotiate this for you. It is an option to look into for those who are tight on funds.
Please feel free to contact me at (312) 285-6644 with any questions you might have. And if you are a neighbor in Bowmanville, please say hello!
Heather McRae is a residential mortgage lender. She was first introduced to the real estate industry in 2001. Heather lends throughout the State of Illinois and specializes in condos within the City of Chicago. She is a proud resident of Lincoln Square’s Bowmanville neighborhood.