As anybody who has bought a plane ticket knows, that great low fare you saw doesn’t reflect all that you’ll actually spend for your flight. If you want to check a bag, you’ll pay a fee. If you want to pick your seat, you may have to pay more, and if you want something to eat, you’ll do the same. All of these “extra” costs don’t cost any less just because they weren’t part of the main price. They still come out of your pocket. The same goes for closing costs when you buy a home in Chicago.

Being one of the largest financial transactions a person can make in a lifetime, several parties are involved in the home purchase process, representing both sides, to ensure the process runs smoothly. Homebuyers in Chicago need to pay for a lot of things beyond the sale price and need to consider closing costs when setting their home buying budget, arranging their financing and negotiating credits from the seller. While every purchase and every home is different, Chicago buyers can expect to pay between 2% and 5% of the purchase price in closing costs. Actual costs, of course, may vary.

What Do Closing Costs Cover?

Buying a home is a team effort. Not just among the purchasers, their agent, and their lender, but also attorneys, home inspectors, title insurers, appraisers, surveyors, and others who play a vital role in ensuring that all goes well between the exected contract and closing day. Although closing costs are typically higher for sellers, the buyer will also incur expenses during the escrow period. The good news? Buyers do not pay for real estate commissions, which is one of the key reasons Chicago home seller’s closing costs are typically much higher (7 to 10%).

Closing costs don’t only include fees, but also prepayments and escrow deposits required by your lender. Outside of earnest money deposits (which are paid in two installments and go towards your down payment or the purchase price), plan for the following closing costs when purchasing a home in Chicago:

Closing Fees

Home Inspector – $300+

As long as you have an inspection contingency written in your purchase and sale contract, you have the right to hire an inspector to ensure the home has no major faults that would depreciate its market value or even cause you to walk away from the contract. Buyers typically hire home inspectors within a few days after going under contract to ensure there aren’t any hidden or unidentified problems that could become a financial and emotional headache now or in the future. Note that the estimated cost of $300 only covers a basic home inspection; termite, mold, and other specialty inspections usually require an additional appointment. Typically, inspection fees are paid on the day of the inspection in advance of the closing.

Appraiser – $350 – $550

Your bank is lending you a lot of money, so it wants to make sure that the amount it is paying approximates the home’s market value. Your lender will be the one to hire the appraiser but you’ll be responsible for the cost. If the appraisal comes in low, you’ll be responsible for either renegotiating with the seller or making up the difference between the appraised value and purchase price in cash.

Loan Origination Fees – $1000 – $1500

What would a bank be if it didn’t charge loan origination fees? Your lender will charge for originating, processing, or underwriting your loan. There might also be an additional charge for the credit report.

Attorney Fees – $500 – $1000

Both the buyer and seller typically retain their own real estate attorneys to reviews all documents and manage the closing to ensure that all legal issues and requirements have been addressed. It’s best to hire an attorney who is well versed in Chicago real estate transactions to ensure all required items are addressed in a timely manner to ensure the deal closes on time. For example, a real estate attorney who predominately oversees single-family homes in a suburban area might not know the requirements involved with a condo purchase under a homeowner’s association (HOA) in the city.

City of Chicago Transfer Tax Stamps – $7.50/every $1k

With certain exceptions, the City of Chicago imposes a tax on all real estate transfers at a rate of $5.25 per $500.00 of the transfer price. Generally, the buyer is responsible for $3.75 of that amount, while the seller is responsible for $1.50. These transfer taxes are also referred to as “property tax stamps.” For example, on a $400,000 home purchase in Chicago, property tax stamps for the buyer total $3,000. The seller alone is additionally responsible for a Cook County transfer tax and State of Illinois transfer tax, which brings their total to $4.50 per every $1,000. There are some exceptions, including tax deeds and court-ordered title transfers from divorce proceedings.

Title Search and Title Insurance – $2500 – $3750

When you buy your home, your lender doesn’t want somebody or some entity later claiming that they have an ownership interest in the property due to a court judgment or are owed money secured by the property from a tax, construction or creditor lien. The title search conducted as part of issuing the policy will reveal any current claims while the lender’s title insurance will ensure that they are protected should a past claim go undetected. When you purchase your lender’s title insurance, the provider will include the cost of a title search (usually $75 to $100 on its own). Note that the lender’s title insurance only protects their stake in the home, not the buyer’s equity. The seller might also pay a title insurance policy for the buyer, called the owner or buyer’s title insurance, if negotiated into the contract. Both insurance policies typically cost the same amount.

Recording Fee – $98

This is what you pay to Cook County Recorder of Deeds when you file your deed showing you as the owner of the property. The cost is usually $98.00, as of March 21, 2019.

Prepayments

Prepaid Homeowners Insurance – $500 – $2500

Homeowners insurance is required by your lender and you’ll be responsible for paying the first year premium at closing. The cost varies widely depending on the type of property you’re purchasing and if it’s located in a flood zone. For instance, a single-family home insurance policy is usually more expensive because the homeowner is responsible for the entire structure and exterior. Meanwhile, a condo insurance policy is less since you are only liable for the unit itself, while the homeowner’s association is responsible for everything outside of your walls, including any repairs related to common spaces, roof, and exterior of the building.

Prepaid Interest 

Mortgage interest is paid in arrears (i.e. after the interest is incurred), so you’ll need to prepay the interest on your loan that covers the date of closing to the end of that month. If you closed on April 15th, you’ll escrow 15 days of prepaid interest, and some buyers opt to close at the end of the month to limit the interest owed. You’ll pay your mortgage interest for the month of May when your first mortgage payment arrives on June 1, June interest on July 1, and so on.

Initial Escrow Payments

This escrow account is different than the escrow account that was set up for your earnest money deposits and will typically be active until you decide to sell. Your mortgage escrow will cover things like property taxes and insurance, and every time you pay your gross monthly mortgage (comprised of principal, interest, taxes and insurance), part of that payment will fund this account. Because your first mortgage payment doesn’t start until the first of the month at least 30 days after closing, your lender will require partial escrow funds at closing, usually to cover the interim.

Property Tax Escrow

Like mortgage interest, property taxes in Chicago are also paid in arrears. When you escrow your property taxes, your mortgage servicer will pay the two installments due on March 1 and August 1 of each year on your behalf. On March 1, you owe 55% of the previous year’s bill. Ultimately, the property tax escrow is an estimate since the new tax bill that includes reassessments, new exemptions and rate changes for the second installment isn’t mailed until early July.

The amount of property tax you’ll initially escrow and later pay monthly depends on three things: your home’s assessed value (10% of the market value), the property tax rate and the date you close. Property tax rates in Chicago vary by neighborhood and are applied to the assessed value after factoring in any homeowner exemptions or senior freezes. The general tax rate in Chicago is 6.786 percent.

Because of the way property tax bills in Chicago are structured, the seller will also need to escrow or credit money to cover the period they lived in the home of which the property taxes have not been paid. If you were to close on your new home in March, the seller will prorate 105 to 110% of the most recent bill to account for any changes in the tax to cover all of 2019 plus the months they lived in the home in 2020.

Homeowner’s Insurance Escrow 

In addition to the year upfront charge for homeowner’s insurance, you’ll also deposit some money into escrow for future homeowner’s insurance bills. The exact amount will vary depending on your insurance premium and your lender’s requirements, but it’s always in addition to that first year’s prepaid premium.

Mortgage Insurance Escrow

If you owe mortgage insurance, or PMI, because you’re putting less than 20% down on your purchase, you’ll also deposit around two months of mortgage insurance payments into the escrow account that’s set up at closing.

Some of your buy-side closing costs may be negotiable. Whether you ask the lender to lessen their fees or negotiate with the seller for a closing cost credit (usually from an inspection item), this can help minimize the amount of cash you need at closing. Don’t forget to account for any additional miscellaneous items, such as mortgage points you may have purchased to lock in a lower interest rate.

Your agent, lender, and attorney will make sure you know and understand all of the costs involved in your Chicago home purchase before you head to the closing. In most cases, you’ll need to have your checkbook handy.