When calculating closing costs, buyers should also factor in their cash to close, which includes the down payment and other upfront expenses such as prepaid taxes and insurance.
Cash to close can range from 2% to 5% of the home’s purchase price. It’s essential to budget for these costs in addition to the closing costs themselves to ensure a smooth home-buying process.
How to Estimate Closing Costs on a House?
Obtain a loan estimate from your lender:
Within three days of receiving your home loan application, your lender is required by law to provide you with a loan estimate outlining the estimated closing costs for closing with your specific loan. While this estimate will not be 100% accurate, it will guide you on what you can reasonably expect to pay.
Review the loan estimate:
It is important to review your loan estimate carefully to see which closing costs are included and what your total out-of-pocket expenses will be.
Compare estimates:
If you’re getting loan estimates from multiple lenders, compare them side-by-side to see which one offers the lowest overall closing costs.
Talk to your real estate agent:
Your real estate agent can also help you estimate the closing costs by providing insight into average closing costs in your local area, as well as recommending reputable service providers.
Prepare for the closing:
Make sure you have the funds available to cover the closing costs in addition to your down payment. They are usually paid by wire transfer or cashier’s check.
House Closing Costs Calculator
Here is an example of actual Seller and Buyer Closing Costs on a $500,000 house sale in Chicago, Illinois:
* Adler & Herbach offers these fees at a 50% discount to the amounts shown. For a detailed estimate of your closing costs, contact Adler & Herbach.
Conventional Loans
For conventional loans, buyers generally have to pay the bulk of the closing costs (excluding realtor commissions) such as the fees for appraisal, credit report, flood certification, buyer’s attorney, loan origination, discount points, and settlement fees. These costs can total about 2-5% of the home’s purchase price.
However, sellers may agree to cover a portion of these closing costs to help close the deal and make the deal more attractive to the buyer.
How much the seller can contribute varies depending on the amount of the buyer’s down payment. The seller can pay up to 3% of the sales price toward the buyer’s closing costs if the down payment is less than 10%, up to 6% if the down payment is between 10% and 25%, and up to 9% if the down payment is more than 25%.
FHA Loans
Apart from the costs involved in conventional loans, with an FHA loan there will be an additional upfront mortgage insurance premium of 1.75% of the loan amount and an annual mortgage insurance premium of 0.45% to 1.05% of the loan amount.
Here buyers may also have to pay a closing cost of 2-5% of the home’s purchase price (excluding realtor commissions).
However, sellers can contribute up to 6% of the home’s purchase price towards the buyer’s closing costs.
USDA Loans
For USDA loans, closing costs include most of the same fees as conventional loans, plus a one-time guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the loan amount. This guarantee fee can be financed on top of the base loan amount.
Though buyers incur these fees, sellers are permitted to contribute up to 6% of the home’s purchase price towards the buyer’s closing costs.
If the home’s appraised value is higher than the purchase price, the buyer may also be able to include some or all of the closing costs in the loan.
How Much Are Closing Costs For Buyers?
Property related fees
1. Property Appraisal fee
The property appraisal fee is the cost of having a professional appraiser evaluate the value of the property. The average cost of an appraisal is around $350 to $500, but it can vary depending on the size and complexity of the property.
2. Home inspection fee
A home inspection fee covers the cost of hiring a professional to inspect the property and identify any potential issues that could affect its value or safety. The average cost of a home inspection is around $500 to $750, but it can vary depending on the size and age of the property.
3. Property tax escrow
While not technically a fee, most loans will require the buyer to put funds into an escrow account at closing from which the lender will pay property taxes when they become due. The amount of this escrow is determined by the amount of the property tax bill and when the next tax installment comes due.
Title related costs
Lender’s title insurance
A policy that protects the lender in case there are any issues with the property’s title. The lender’s title insurance costs are typically around $585 on a residential property in Illinois.
Learn more about how much title insurance costs in Illinois.
Mortgage related fees
1. Credit report fee
A credit reporting fee covers the cost of pulling the buyer’s credit report. The cost for this report is typically less than $50.
2. Loan Origination fee
A loan origination fee covers the cost of processing the buyer’s mortgage loan. The cost of a loan origination fee is typically between 0.5% to 1% of the loan amount.
3. Application fee
An application fee covers the cost of processing the buyer’s loan application. The cost of an application fee can vary depending on the lender, but it is typically less than $500. Some lenders do not charge this fee at all.
4. Discount points
Discount points are fees paid to the lender to lower the interest rate on the buyer’s loan. This is entirely optional for the borrower, and may be worth considering if you don’t plan to refinance or pay off your mortgage for a while. Each point is equal to 1% of the loan amount.
5. Underwriting fee
The underwriting fee covers the cost of evaluating the buyer’s loan application. The cost of an underwriting fee can vary depending on the lender, but it is typically less than $1,000. This fee can be charged as an alternative to the origination fee or in addition to it. Some lenders do not charge underwriting fees at all or are willing to negotiate on it.
6. Private Mortgage Insurance premium (PMI)
Mortgage insurance premium is only required for borrowers who make a down payment of less than 20% of the home’s purchase price.
The upfront mortgage insurance premium (UFMIP) is usually included in the loan, and the annual mortgage insurance premium (MIP) is added to the buyer’s monthly mortgage payment.
7. FHA Loans
If a buyer is obtaining a loan through the Federal Housing Administration (FHA), they will be required to pay a UFMIP of 1.75% of the loan amount and an annual MIP that varies depending on the loan term, loan amount, and the initial loan-to-value ratio.
8. USDA Loans
The U.S. Department of Agriculture offers USDA loans which are designed to help low- to moderate-income borrowers in rural areas. The USDA charges an upfront guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the loan amount.
9. Veterans Affairs funding fee
Borrowers who are veterans, active-duty service members, or eligible surviving spouses may qualify for a loan through the Department of Veterans Affairs (VA).
VA loans do not require mortgage insurance, but borrowers (home buyers) will be required to pay a funding fee to the Department of Veterans Affairs that varies depending on the loan amount, type of loan, and military status. This funding fee can range from 1.4% to 3.6% of the loan amount, depending on the down payment and whether the borrower has used a VA loan before.
Attorney fee
The attorney fee can vary, but it typically ranges from $500 to $1000. The attorney fee is for legal representation during the purchase process and for ensuring all documents are in order.
Closing fee (also settlement or escrow fee)
The closing fee, or escrow fee, typically starts at $1650.00 and goes up to a few thousand dollars in the Chicagoland area, depending on the purchase price. The buyer typically pays this fee, except in a cash transaction, where it is split between buyer and seller.
This fee is charged by the title company that manages the closing process and ensures all parties receive their funds. The fee covers the cost of the company’s services, such as preparing documents and disbursing funds.
Courier fee (or overnight delivery fee)
A courier fee ranges from $25 to $50 and covers the cost of loan documents being delivered via courier service.
Flood determination and monitoring fee
This fee ranges from $10 to $20 and covers the cost of determining if the property is in a flood zone and monitoring it for any changes in flood zone boundaries.
Government Recording fee
The county recorder’s office charges the government recording fees for recording the property deed and mortgage. This fee varies based on county. In Cook county, for example, each recorded document costs $98.00.
Homeowner association transfer fee
If the property is part of a homeowner’s association, there may be a transfer or move-in fee ranging on average from $200 to $500.
Homeowners Insurance
Homeowners insurance is required for all mortgage loans and typically costs around $1000+ per year. The premium for the first year is usually paid at closing.
Lead-based paint inspection
If the property was built before 1978, the seller is required by law to provide a lead-based paint disclosure form. If the buyer is concerned about exposure, they have the option to hire a professional to conduct a lead-based paint inspection.
Pest inspection fee
A pest inspection may also be conducted, at the buyer’s expense, to ensure that the home being purchased is free of pest infestations such as termites, ants and rodents.
Prepaid daily interest charges
The interest on a loan begins to accrue on the day of closing. The prepaid daily interest charges is the interest that accrues between the closing date and the end of the month. This fee is typically calculated by multiplying the loan amount by the interest rate and dividing by 365.
Rate lock fee
A rate lock fee is a charge you may incur to lock in a specific interest rate on your mortgage loan. On most mortgage loans, you will not see a line item for this fee because it is built into the rate you end up paying on your loan. Under certain circumstances, however – such as a rate lock extension – you may pay a fee ranging from 0.25% to .5% of the loan amount.
Tax monitoring and tax status research fees
The lender may charge a fee for tax monitoring and tax status research to ensure that there are no outstanding property tax payments or liens on the property.
The cost of these fees can vary, but you can expect to pay between $75 and $200 for tax monitoring and tax status research.
Transfer taxes
In Illinois, there is a tax on the transfer of real estate. Taxes are assessed by the State, County and/or Municipality on the transfer of property based on the sales price.
In most of Illinois, the Seller is responsible for state and county taxes. In Chicago, the Seller is also responsible for a portion of City of Chicago taxes, while the Buyer pays the rest. Other municipalities require the buyer to pay the municipal transfer tax.
How Much Are Closing Costs For Sellers?
Attorney’s fees
When selling a home, it’s always a good idea to have an experienced real estate attorney on your side. An attorney will ensure all the legal paperwork is in place and that the real estate transaction progresses smoothly through closing. The attorney fee can range from $500 to $1,000, depending on the complexity of the sale.
Survey fee
A survey is necessary to determine the property’s boundaries and ensure that there are no encroachments or easements on the property. This fee typically ranges from $500 to $600, but can be higher for unusually sized or shaped parcels.
Credits toward closing costs
Credits toward closing costs are sometimes offered to buyers by sellers to make their property more attractive. Sometimes, the buyer may request a credit toward their closing costs.
This credit is typically negotiated during the offer and counteroffer stage. So, depending on the final terms of your contract, a seller may be required to offer credits to the buyer to cover certain closing costs.
For example, you may agree to cover a portion of the buyer’s closing costs or offer credits toward repairs or upgrades. These credits can range from a few hundred to several thousand dollars. So technically, the amount of the credit can vary widely and may end up at around 3% to 4% of the sales price.
Escrow fees (also closing or settlement fees)
Escrow fees are charged by the title company or closing agent for managing the escrow account, which holds the seller’s funds until the transaction is complete. This fee covers the costs of facilitating the closing, recording the deed and mortgage, and disbursing all the funds to the proper parties.
This fee is based on the purchase price and can range from around $1650 to a few thousand dollars. It is typically paid by the buyer, except in a cash transaction, where it is split between buyer and seller.
Homeowners Association Transfer Fee
If the home is located in a homeowners association (HOA), there may be fees associated with transferring ownership. The fees can vary depending on the HOA but are typically around $200 to $500.
Prorated Property taxes
Since real estate taxes in Illinois are paid in arrears (meaning the current bill is for the prior year’s taxes), the Buyer will be “paying” for the time you lived in the house. This proration is a credit for the portion of time that you occupied the house, for which the buyer will eventually pay the tax bill.
The prorated amount is typically calculated by dividing the annual tax by 365 and multiplying it by the number of days the seller owned the property during the current tax year.
Real Estate Agent Commission
The seller typically pays the real estate agent’s commission, which is usually the highest line item. The commission can vary, but it is generally between 5% and 6% of the sales price. The commission is split between the buyer’s and seller’s real estate agents.
Transfer taxes
The transfer tax is generally paid by the seller and is calculated based on the value of the property being sold. In Illinois, the transfer tax rate for residential real estate properties is $1 for every $1000 of the home’s value. For example, selling a $300,000 home will merit a $300 tax.
Counties in Illinois may impose an additional 25 cents for every $500 of the property’s value. This means the same $300,000 home sold in a county with an additional tax would add another $150 to the transfer tax. These state and county transfer taxes are paid by the seller.
Many cities and municipalities also charge their own transfer taxes, though these are sometimes paid by the buyer. In the City of Chicago, the tax rate is currently set at $5.25 per $500.00 of the purchase price. This amount is split between the seller ($1.50 per $500) and the buyer ($3.75 per $500).
It is important to consult with your attorney or agent to determine the total transfer tax and who is responsible for paying it in a specific location.
Owner’s Title Insurance
Title insurance protects the buyer in case there are any legal disputes over the ownership of the property. The seller is typically responsible for paying for the lender’s title insurance. The premium is based on the sale price and can range from $1950 to several thousand dollars.
The seller may also be responsible for paying the title search fee, commitment update fee, closing protection letter (CPL), and other title-related fees, which can add several hundred dollars to the costs.
Through an innovative program, Adler & Herbach is able to offer a 50% discount on seller’s title fees. For an estimate of YOUR savings, see our Sellers page.
How to Reduce Closing Costs on a House?
Several strategies can be considered if you’re seeking ways to lower the expenses of closing on a property.
Shop Around for a Lender
One of the most effective methods to cut costs is by researching different lenders to find the loan that’s best for you. Lenders offer varying rates and fees, and a thorough comparison can uncover a lender with lower interest rates and closing costs.
Avoid Discount Points
Discount points are a type of prepaid interest that can be paid to lower your mortgage interest rate. While this may seem like a good idea, it can actually increase your closing costs. If you want to reduce your up-front mortgage closing costs, avoid paying discount points. On the other hand, if you plan to have your mortgage for a while, paying discount points can reduce your interest rate and monthly payment, saving you a lot of money over the life of the loan.
Negotiate with the Seller
Another cost-cutting tactic is to negotiate with the seller. While it may not always be feasible, asking the seller to contribute towards your closing costs can significantly impact your required down payment.
Schedule Your Closing at the End of the Month
Prepaid interest accrues between the time you close on your home and the end of the month. So when you schedule your closing at the end of the month, you have less prepaid interest to pay.
Compare the Loan Estimate and Closing Disclosure Forms
A careful review of your loan estimate and closing disclosure forms can help you spot any mistakes or discrepancies that could be causing inflated expenses. Addressing these items line by line with your lender can sometimes result in savings.
Explore Rebates and Incentives
Some lenders offer rebates and incentives to help you save money on closing costs. Make sure to ask your lender if they have any programs or options for this.
Roll Closing Costs into Your Mortgage to Reduce the Down Payment
Rolling closing costs into your mortgage is also an option if you’re struggling to cover the upfront costs. While this may lead to a higher monthly payment, it can help you avoid a substantial upfront mortgage payment.
Negotiate Real Estate Commissions
If you’re working with a real estate agent, negotiate their commission. This can help you save money on your closing costs.
The Bottom Line
In conclusion, closing costs can vary greatly depending on the type of loan, the location of the property, and other factors.
It is important for both buyers and sellers to understand the various fees and expenses that are involved in the closing process, from property-related fees to mortgage-related fees, attorney fees, and more.
By shopping around for the right lender, negotiating with the seller, and exploring rebates and incentives, buyers and sellers can potentially reduce their closing costs.
Working with an experienced real estate attorney can also help ensure a smooth and efficient closing process.
Adler & Herbach is proud to be at the forefront of the Illinois real estate landscape by partnering with a title agency to offer 50% off seller’s title fees. To get a full analysis of how much you can save, call (847) 318-3770 or fill out an online form at https://northsidelegal.com/contact/.
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