Wondering how much you’ll need to pay for closing costs when you’re buying a home in Chicago? You’re not alone. You already know you need a down payment, but did you know there are other closing costs that go into buying a home in Chicago?
When you buy a home in Chicago, it takes a village – lenders, attorneys, inspectors, title companies – even the local government gets in on the action. And all these people and companies need to get paid. General rule of thumb says your closing costs will equal around 2-5% of the purchase price of your home, but few people are satisfied with such a wide-open estimate.
So, what do all of these closing costs include? Here’s a list of every closing cost from contract to close:
Home buying costs: these are closing costs associated with buying a home in Chicago.
- Condo Questionnaire (if you’re buying a condo)
- Lender Fees
- Title Fees
- Recording Fee
- City of Chicago Transfer Tax
- Attorney Fees
Deposits and prepaid items: Most of the items below aren’t closing costs necessarily; they’re actually ongoing costs that are part of everyday homeownership. But when you buy a home in Chicago, you’ll need to pay for a portion of them upfront:
- Earnest Money Deposit
- Prepaid Interest
- Homeowners Insurance
- Property Tax Escrows
- Tax Proration Seller Credit
- Homeowners Insurance Escrows
- Homeowners Association Fees (if you’re buying a condo)
The actual amount of these closing costs depends on factors like which third parties are hired, what time of year you buy your home, what area you live in, the positioning of the planets, etc.
If this is looking like a lot of math already and you just want to know how much your closing costs will be, you might want to download our handy Chicago closing cost calculator. It tells you what you’ll have to pay for, how much it costs, and most importantly, when you’ll have to pay it.
Want to know more about each of these closing costs? Let’s do a shallow-dive into each one of these fees in order of when you need to pay them.
Costs you’ll pay when you go under contract
There’s one thing you want to be prepared to pay as soon as you strike a deal with the seller:
- First earnest money deposit: Yes, there will likely be a second, but don’t worry about that just yet. Earnest money is the money you pay the seller to show your commitment to buying the home. This is typically kept in an escrow account held by the seller’s agent and will not be immediately released to the seller. Your first earnest money payment is usually $1,000 to $5,000, and the exact amount is negotiable. We know what you’re wondering, and yes, earnest money goes toward your down payment. So this one isn’t necessarily a “closing cost” but you’ll still need to be ready to write that personal check.
Costs you’ll pay shortly after you go under contract
These are the closing costs you’ll want to get sorted out right after you go under contract:
- Inspection fee: You’re going to want to schedule an inspection immediately after going under contract to check out the condition of the property. This usually runs $300 to $1,000. Check out Anthony Pope of AP Inspections, who helped us write this blog on red flags to look out for during a showing, before you ever go under contract.
- Appraisal fee: This is a non-refundable fee your lender charges you so they can send a licensed appraiser to your future home. The appraiser’s job is to look at how the purchase price of the property stacks up to similar homes that have sold recently. This makes your lender feel warm and fuzzy about your home’s value.
- Condo questionnaire*: This is a document your lender sends to the condo building to get basic information on the financial health of the building such as HOA delinquencies, litigation, etc. The property manager or Board fills out the Condo Questionnaire and sends it back to the lender. There’s an asterisk on this one because 1.) it only applies to condos, not houses, and 2.) it only applies to some condos. Some will charge you for the time it takes to fill out the form – $50 or even $300 while others do it for free. Isn’t this FUN?
Costs you’ll pay during your “attorney review” period
The attorney review period starts right after the contract is signed. The attorney review period can take anywhere from 5-10 days. You can learn more about what goes on during attorney review here. Once attorney review is over with, it’s time for some more closing costs:
- Second earnest money deposit: Ah, another earnest money payment. You knew this was coming…we warned you. This is typically due 2-3 days after attorney review closes. It often equals 5% of the purchase price, minus the initial payment you made toward the first earnest money payment. Just like the first earnest money deposit, this amount is negotiable and goes toward your eventual down payment. A cashier’s check usually works best here.
Costs you’ll incur between the second earnest money and closing
Nothing. After the second earnest money deposit, you have no payments to make regarding your home purchase until the closing. This is the time to do any last minute savings. Start checking between those couch cushions for loose change. Sell your Olive Garden gift cards from your aunt Sherry for cash. Ask your nephew if he’s interested in splitting the revenue on his next lemonade stand.
Costs you’ll pay at closing
This is the moment you’ve been waiting for while pinching pennies and searching under couch cushions. It’s all led up to this moment; the closing! So what closing costs stand between you and Chicago home ownership?
- Lender fee: This is an origination charge that you pay the lender. It may be broken down into processing/underwriting fees or presented as a flat fee. No matter how it looks, nobody likes to pay lender fees! The fee covers the overhead cost of the half dozen people who will work on your loan, in addition to smaller fees that the lender pays on your behalf (credit reports, flood zone reports, fraud checks, IRS tax transcripts, etc). Your mortgage banker does not actually get any of this money. Lender fees range from $1,200 to $1,600. The best part: It’s also one of the few fees that you can haggle. To learn more about lender fees (and begin haggling), your Realtor can refer you a mortgage banker, such as Jim Pomposelli of Lakeside Bank.
- Title fees: Just like a car, you have ownership rights to your new home because you hold title to it. Title insurance is there so that no one can claim rights to your property. (Example: a contractor that the seller ripped off who now wants to put a lien on your title.) Your title fees include title insurance for the lender, a closing fee for sitting at the title company at closing and a full page of other fees that only your attorney can explain. Unfortunately, the costs can include fees like an “email fee.” No that’s not a joke…Last time we checked, email is free but apparently title companies are paying a premium for this stuff. Someone please clue them in. The good news is that the seller buys your title insurance policy, but the bad news is that the seller’s attorney picks the title company, so you cannot shop for cheaper title fees. You get what you get…try not to get too upset.
- Recording fee: This one is paid to Cook County to make your mortgage public information. It’s around $150, and you will receive about six months of junk mail afterwards because your name and address are public. But this is one of those necessary fees you have to pay to own a home in this glorious city, so it’s worth it. Right? RIGHT??
- City of Chicago transfer tax: Remember how glorious Chicago is while we tell you about another fee associated with living in this city: the transfer tax. This is a one-time tax on your home that equals $7.50 for every thousand dollars of purchase price or 0.75%. It helps to think about our city’s miles of scenic lakefront and hundreds of acres of beautiful parkland while you pay this closing cost.
- Attorney fees: We recommend hiring an attorney who’s an expert in residential real estate and has a good support team. An attorney who focuses on residential real estate will most likely be able to crank out the attorney review period faster, because they are more immersed in this type of law. And one with a good support team typically costs a similar amount compared to a solo attorney, but you get better communication and service with an attorney handling the big stuff and a paralegal pushing the paperwork. Attorney fees range from $550 to $850. Your Realtor can refer you an attorney, such as CJ Lamb of Gunderson Law.
- Prepaid interest: This is your first mortgage payment. It’s the daily interest from the date of the closing to the first day of the next month. Good news is your next mortgage payment isn’t until a month after that, since mortgages are paid in arrears as opposed to rent, which is paid in advance. (For example, if you close on April 15, you’ll pay your first mortgage payment for the days between the 15th and May 1 at closing, and you won’t pay your second mortgage payment until June 1.)
- Homeowners insurance: Your bank will require you to buy homeowners insurance, and the first year premium is paid upfront at the closing. This premium varies a lot depending on which kind of insurance you choose and which kind of home you’re buying. Keep in mind, insurance for a house will be more expensive than a condo because you’re also insuring the exterior and roof of the house. When you buy a condo, the association has insurance to cover the roof/exterior and you pay for it in your HOAs. Generally, we’d say $480/year is typical for a condo and $1,000/year is typical for a house.
- Property tax escrows: People commonly escrow their taxes, especially when their down payment is less than 20%. This means you’ll pay about 1/12th of your property taxes every month as part of your mortgage. Your bank will then pay the Cook County tax bill when it comes out March 1 and August 1 of each year. To make sure that there is enough money in your escrow account to pay your property taxes, you must put deposits in the account at closing. Estimating property tax escrow deposits is difficult to nail down since they are always changing depending on the month of your closing, but that’s why we have a calculator to do that for you. You’re welcome.
- Tax proration seller credit: It’s important to note that taxes in Chicagoland are paid the year after you live in the property. This means that you’ll be paying a portion of the taxes on behalf of the seller for when they lived in your home. Don’t worry – your attorney will make sure you get a credit from the seller at closing to cover these taxes. The seller credit is called a tax proration because it is prorated to the closing date. You can also use our calculator to determine an estimate of how much you can get from the seller. You can learn more about our crazy Cook County property taxes here.
- Homeowners insurance escrows: Although it may feel like you’re buying homeowners insurance twice, you aren’t! When you pay for homeowners insurance at the closing, it covers a one-year period starting on the closing date. You need to start escrowing homeowners insurance so that the bank has enough funds to pay your premium that is due a year from now. Just like property tax escrows, you deposit funds in your escrow account at closing and pay 1/12th of the premium each month as part of your mortgage payment.
- Homeowners association fees: Since HOA fees are paid on the first of the month, the seller will typically pay these on your behalf, then you pay them back at closing for the portion that covers the time you’ll be living there. This is obviously another closing cost only associated with condos.
- Down payment: Most people are aware now that you don’t have to put down 20% of your home’s purchase price. You can still get a conventional mortgage by putting 10%, 5% and sometimes even 3% down. You’ll have to pay mortgage insurance or “PMI” if you put down less than 20%, which will cost you a little more each month. That’s not fun, but it’s better than flushing a few thousand dollars down the drain for rent. Talk to your lender about the options you have. Your remaining down payment paid at closing will equal the percentage of your home purchase minus the total amount of earnest money you’ve already paid.
WHEW. We’ve made it to the end.
Give yourself a couple minutes (or days) to digest the information you just read.
Do you love math? Great, now would be a good time to crunch all these numbers yourself and figure out exactly how much cash you’ll need to buy a home, and when you’ll need it. For everyone else…just download our closing cost calculator. This will give you an estimate of how much cash you’ll need based on your purchase price, down payment and property type, as well as when you should be paying.
Fill out your information below to download our closing cost calculator:
Wondering how much a lender will let you borrow to buy a home, but don’t like talking to humans? You might like to check out our buyer power calculator to determine how much you can afford on a home.
Need a deepest dive (or just have a ton of questions/need more help understanding all of this)? We recommend talking to a lender to find out more about the costs associated with buying a home and get a better idea of what you can afford. It’s one of the first things you’ll want to do in our blog post 10 Steps to Buying a Home in Chicago. Our favorite lender Jim Pomposelli of Lakseside Bank is a good man for the job – after all, he helped us write this article and created the closing cost calculator for us.