CONGRATULATIONS! Here are the Keys to Your New Home
This is Charles McShan Real Estate Broker with Century 21 Universal. This is the concluding part of Steps to Home Ownership in The Chicago Land Area. This part deals with the final step of a Real Estate Transaction and that is the Chicago Land Real Estate Closing Process. A lot of people have asked the question about the closing process. As the above photo highlights to get the keys to a new home into the buyer”s hand is not an easy job. There were multiple steps that involved multiple parties working together with coordinated effort and cooperation. Who are the multiple parties? They are seller, the buyer, the real estate brokers, the mortgage lenders, the title company and the Real Estate lawyers.
“We are now cleared to close.” With those words, another group of people now becomes part of the Real estate closing process and they are the various forms of Government. What do they want? They want their share of your deal, everything has a cost and in the Chicagoland area that means you have to pay taxes to the city, the county and the state of Illinois. It is also at the closing that the majority of the other fees involved in bringing this deal to this closing will get paid for. A lot of Homebuyers only know the price of the home that they just purchased. A lot of buyers were not prepared for the Thousands of dollars involved in the aforementioned taxes and fees and so on. So this blog post will cover the costs that will be paid at the Real Estate closing process in the Chicagoland area. I can not speak on transactions outside of the Chicagoland area, your costs might be different so please contact your local authorities.
What are the fees involved a Real estate Closing Process?
1: Home Inspection
3: Condo Questionnaire(if you are buying a condo)
4: Lender Fees
5: Title Fees
6: Recording Fees
7: Attorney Fees
8: Municipalities Fees for the City/Village, County, and the State of Illinois
Now, Let’s look at these costs in detail so you will understand and be prepared for the money that will come out of your pocket. First the Home Inspection. We talked about this in part 2 of this blog post series. This is a home buying cost and not a closing cost because you the buyer to pay the Home Inspector in advance before he/she inspected the property. At the closing you the buyer will also pay for the cost of the appraisal and in the blog prior to this one, we went into detail about the purpose of the appraisal.
For those purchasing a Condominium, this document was sent to the property manager or Condo board so the Lender will have information on the financial health of the complex. What are their reserves, the HOA delinquencies, litigations, etc? Some Condo boards will honor this request, some will not. Some will do it for free, some could charge upwards from $50.00 and upwards into the hundreds. The lender will pay that cost and then pass that charge to you the buyer. So for you Condo purchasers out there, be prepared to pay that cost at the Real Estate closing process.
This is an origination fee that you pay the Lender. It can be called a processing fee/underwriting fee or as a flat fee. This covers the cost for all the people who worked on your file as well as other fees the lender pays on your behalf. These fees can range from $1.200 and upwards.
With the title, you have ownership rights to your home because you hold the title. By having insurance on your title no one can claim rights to your property without a legal fight. This protects you the buyer from someone in the past claiming the former Seller owes them money from a previous repair job and since they did not get paid they want to put a lien on your title. These fees cover the Title Insurance a closing fee, other fees that will be explained to you by your lawyer at the closing table.
This fee which costs around $150.00 is paid to the Cook County or surrounding Counties clerk to make your mortgage a matter for public information.
The Fees for both Lawyers are dispersed at the closing table.
Municipalities Fees for the City/Village, County, and the State of Illinois
This is the complex part of a Closing transaction. All local forms of Governments want their cut of the pie when you sell a home. Those select Municipalities charge you a tax when the property is transfer from one person to another. These taxes go by various names depending on where you live. They can be called conveyance fees, transfer taxes or transfer stamps. If you do not prepare yourself mentally for this costs you could faint due to sticker shock. This type of tax generates a lot of revenue for that local government. Typically the Buyer and the Seller will split or negotiate who will pay what depending on the categories. The Lawyers at the time of the closing will explain it to you. Every Municipality and County that have these taxes can have different rates. Your local community might not even have these taxes and before you think about buying in a certain area you should look into seeing if that area has this tax structure. This way you can prepare yourself for the added cost. For areas outside of Chicago and other States check with your local representatives to see if your area has this added fee. For the city of Chicago here is the current transfer stamp rate as of 2018.
The State of Illinois: $1.00/$1000 of price, customarily paid by the seller.
Cook County: $.50/$1000 customarily paid by the seller.
City of Chicago: $7.50/$1000 for city portion, $3.00/$1000 for CTA portion (a supplemental tax).Typically
buyers pay $7.50/$1000 and seller pays $3.00/$100.
Here are other fees that will cost you upfront money at the closing table
The same rule applies to buy a home as it does to buy a new car. Both will require you to have insurance to cover the investment that you just purchased from them. In regards to the homeowner’s policy, your first-year premium will be paid upfront at the closing. The price of the premium will depend on the type of home you are purchasing. If you are buying a Condo the price will be cheaper Why? Because when you buy a Condo you are paying mainly for your unit and other minor things. You do not pay for the building exterior, the roof, etc. Those items are covered by your HOAs.The Condo purchaser’s premium will be around $500.00.For a Single-family home, your price will be higher because unlike the condo you will have to pay the added cost to ensure the complete exterior along with the roof lawn, garage and everything else. Your bill could be around $1.000 at the time of closing.
Homeowners Insurance escrows
Hey! Didn’t I just pay for insurance for 1 year in advance and you want more? Well, you are partially right. you did just pay for 1 year in advance starting on the closing date. Now you need to start an escrow account. What is the definition of the word escrow? It simply means “A bond, deed or other document kept in custody of a third party and taking effect only when a specified condition has been fulfilled”. So you need to start escrowing homeowner’s insurance so that the Bank/Mortgage company has enough funds to pay your premium that is due a year from now. Just like the property taxes which we haven’t discussed yet, you will have to deposit your funds into your escrow account at the closing and pay one half of the premium each month as part of your mortgage payment.
Property Tax Escrows
Speaking of property taxes, when you put down less than 20% of buyers will normally escrow their taxes. This means you will pay about half 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 on March 1st and August 1st 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. You will get that exact information at the Real Estate closing process and signing the numerous documents.
Tax proration seller credit
In Chicago, property taxes are paid in the arrears which means you are paying your bill for the year in the closing month of that same year. That means you will be paying the bill on the taxes that covered the previous owner. But do not worry you have your lawyer and he will make sure that you get a credit from the Seller at the closing to cover these taxes. The seller credit is called a tax proration because it is prorated to the closing date.
Homeowners Association Fees
This is strictly for Condos. Since the HOA fees are paid on the first of every month the seller will typically pay these fees on your behalf you will pay the Seller back at the closing for the portion that covers the time you will be living there.
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. The good news is that your next payment is not until a month after that. The reason why again is because of the mortgage like your taxes are paid in the arrears as opposed to apartment rent which due in advance. For example, if you close on April 15th, you will pay your first mortgage payment for the days between the 15th an May 1st at closing and you will not pay your second mortgage payment until June 1st. These are things you should know and now you do.
Your Down Payment
Now, going back to the beginning, when you signed a contract you put up and earnest money check. This check is to show the owner that you were serious about purchasing the home. The check amount varied from $1.000 to $5.000. During the Attorney review, they might ask for a second check. The amount could be negotiable or both parties could wait until the closing to receive an additional amount of cash. Also, in the beginning, you the buyer and the seller set up a closing date which was listed on the purchased contract. during the process of the contract, several things like Home Inspections, bad appraisal, loan problems, survey problems, etc. all can contribute to pushing the closing date further down the road.
Next step, if it is meant to be it will happen. On the closing date, you can expect will pay 3-4% of the purchased price of your home in closing fees. For example, if the home you are buying costs $300.000 you might pay between $9.000and $12.000 in closing costs. That is a lot of money for a home buyer to come up with along with their down payment. To try and minimize that cost the Real Estate Broker will ask the Seller to pay half the closing costs. A lot of times the Seller will co-operate but if the appraisal comes back low things can change quickly. To keep the deal from collapsing they will agree to the lower appraisal price they drop their price. They will no longer not be willing to help you with the closing costs and if that happens, those costs will be 100% on you. Will you ready for that? Think about it.
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 loan mortgage by putting down 10%, 5%, or sometimes 3%. If you put less than 20% down you will have to pay PMI insurance. What is PMI insurance? Do your homework and research the subject to your satisfaction. It is not a cure-all and it can backfire on you. For more information, go to this website an if the subject does not come up go to the search bar an type in what is PMI insurance Please click here.https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-1221.
It is now time to close, What will happen on this day?
We are now cleared to close. The Seller’s Attorney has the privilege of choosing the Title Company and the time and date. Once the Seller’s Attorney sets the time they relay it to the Lender’s office, The buyer’s Attorney and soon, all concerned parties know when an where the closing process will occur. At least 3 days before the closing date your lender must deliver to you a Closing Disclosure. This form lists all the final terms of your loan such as closing costs and the details of who pays and receive money the closing. Review each cost carefully an compare it to your Loan Estimate. Check it out carefully and if anything has changed please contact your lender. Check out your monthly mortgage amount to make sure that it does not go over 25% of your monthly take-home pay.
Today you wake up with anticipation. You and the team you have employed have worked hard to make this day a reality. Your lender or title company representative has probably sent you a checklist of what you should bring to the Title company. This list includes bringing a State photo I.D. Outstanding documents or paperwork for the title company and the loan officer. Certified or cashier’s check made payable to the title closing company for the closing costs that are not being deducted from the sale price.
You will make contact with your Real Estate Broker who will contact the Seller’s broker and together everyone will meet at the home to do a final walk-thru. This is necessary so the buyer can be reassured that the Seller has not taken anything out of the home that they were not listed in the contract to. If things are missing, those points will be addressed at the closing. From here, it is on to the Title company where all parties meet and gather around the closing table.
At The Closing Table
You the buyer will pay any remaining closing costs as listed in your closing disclosure.
The seller or their representative will sign documents to transfer property ownership.
There will be several documents dealing with debits and credits describing who will pay what and who will get money back.
You the buyer will sign a
Settlement statement that lists all costs related to the home sale.
Mortgage note stating your promise to repay the loan.
Mortgage or deed of trust securing the mortgage loan.
The Title company will register the New Deed in your name. This is why in the Chicagoland area you are advised to have a Real Estate lawyer
The Real Estate Broker’s job at the closing is to mainly observe the process. They can not explain legal matters. At a Real Estate closing process in the State of Illinois, the lawyers handle all legal matters pertaining to the documents. The Buyer’s lawyer”s job at the closing is to carefully explain what every line on every Document means to you the buyer. Then your lawyer will ask you to sign and date each document. After signing the Document the Lawyer will give the document to the Seller’s Attorney and eventually the document will be handed over to the Title company’s employees.
During this whole process, both Lawyers will be engaging one another representing their client’s interest The Documents will then be scanned and sent to the Lender’s office, The county’s office and elsewhere. Then the documents will be bought back to the tables where they will be checked for accuracy. Real Estate Lawyers know their stuff, use them. The Real Estate Closing Process is a time-consuming activity. You will be there for hours so please do not think you can do this on your lunch break or schedule anything else for that day until after 6 pm because things can go wrong. Personally, I have had to wait for for a document to be corrected, resent and to come back with the proper wording. Pray that your closing is not on a Friday and 5 pm deadline is approaching and all documents are not signed.
If all goes well at the end of all the signings like the photo at the top of the page, they give you the keys to the house, everyone shakes hands and Congratulations you are the proud owner of that home. Everyone slowly leaves the Title office and you also leave. You can go to your home unless the Seller has asked to stay in the home for a short time under terms known as a rent-back agreement. You have used a lot of mental and physical energy to get thru this day so it would be unwise to try to move into your home on the same day. Relax, catch your breath. Go out to dinner and if you wish, go to your home and plan out your next steps. You earned it. The Real Estate closing process was a success.
As you see, every step to Home Ownership in the Chicagoland area is complex. There are the people you see and people you do not see and if everyone works together the conclusion is another proud homeowner. The Closing Process is basically the same for all types of homes. Personally, I really learned a lot in preparing this Blog series for you. Hopefully, you did too. Do me a favor? Download this complete blog post, put in a folder and save it for when you are ready to buy a home. If you know someone who is asking you a lot of questions about buying a home email a copy to them and please refer me to them. Circulate this Blog post throughout your Facebook network of friends I want to thank you, future home buyers out there for reading this blog. For you home sellers out there you are essential to every deal because your home is the magnet that attracts the buyer. If you are thinking about selling your home in the near future what steps must you take? I will address that subject very soon in a post. Once again my name is Charles McShan. I am a Real Estate Broker with Century 21 Universal. Thank you have a great day and until the next time. Take care.
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