In addition to the down payment, you’ll also have to pay closing costs as part of the money that you bring to the table for your real estate purchase. Closing costs are fees charged by those involved with the home sale (such as your lender for processing the loan, your attorney, the title company for handling the paperwork, local government offices for recording the deed, etc.). The average closing costs percentage is usually about 2-5% of the purchase price.
Your lender will give you an estimate of closing costs on the purchase of a particular house you’ve selected. This is called a “Good Faith Estimate” (“GFE”). The Good Faith Estimate is provided by the lender shortly after loan application is received. There is likely to be some difference between the initial Good Faith Estimate and the final closing costs but they do give you a good idea of how much money will be needed for closing. The actual “Settlement Statement” (aka “the HUD” or “the HUD-1″) is the final and complete form with all the numbers for the sale (including the actual closing costs). It is provided 1-2 days prior to closing. Your attorney will generally receive the information from the lender and provide you with the figure. Starting in October 2015, lenders will be required to provide the final statement of closing costs to the buyer 3 days prior to the close.
Here are typical closing costs for the buyer:
- A fee for running your credit report.
- A loan origination fee, which lenders charge for processing the loan paperwork for you.
- Attorney fees.
- Discount points, which are fees you pay in exchange for a lower interest rate.
- Appraisal fee (the appraisal is a determination of the market value of the home to ensure that sales price (and loan amount requested) is appropriate.
- Survey fee, which covers the cost of verifying property lines.
- Title insurance, which protects the lender in case the title isn’t clean.
- Title search fees, which pay for a background check on the title to make sure there aren’t things such as unpaid mortgages or other liens on the property.
- Escrow deposit, which is a reserve amount for future property taxes, home insurance and private mortgage insurance payments.
- Pest inspection fee.
- Recording fee, which is paid to a city or county in exchange for recording the new land records.
- Underwriting fee, which covers the cost of evaluating a mortgage loan application.
For a cash purchase, there are still closing costs but a lot less since there is not a loan. The closing costs for a cash buyer primarily include: attorney fee, title insurance fee and other title related costs, and government recording fees.
Often, the negotiation process includes a request for the seller to make a contribution toward the buyer’s closing costs. This can help reduce the amount of cash needed at closing. This request is generally part of the initial purchase contract. There may also be state and city funds available for down payment and closing cost assistance. In Illinois, there are funds available up to $5,000 in 2015. Click here for link to Illinois Housing Development authority for more information about state grants for home buyer assistance.
If you are looking to buy or sell in the Chicago area market, call or email me. I look forward to earning your business.