Your 2021 Guide to Closing Costs in Illinois

Bustling cities, world-class sports teams, lower-than-average grocery bills, and picturesque Midwest sunsets — the list goes on when it comes to the perks of living in Illinois. Are you a homebuyer ready to call the Prairie State home?

When it comes to buying a home, most homebuyers know they need to find an affordable city and save for a down payment, but another major expense they shouldn’t overlook are closing costs.

Closing costs encompass all the fees homebuyers need to pay on closing day before they receive the keys and deed to their new property. With a lengthy list of service providers to pay, homebuyers can count on spending about 2 percent to 5 percent of their home’s purchase price on closing day. It’s paid for alongside the down payment, making for one expensive day of spending.

Closing costs can vary by state, so here’s a look at what you can expect to pay in Illinois, what’s typically included, and how you can potentially lower these costs.

How Much Are Closing Costs in Illinois?

Closing costs in Illinois average $1,955 for a home priced at $208,429, according to a 2021 report by ClosingCorp, which provides research on the U.S. real estate industry. That price tag makes up 0.94 percent of the home’s price tag.

The Prairie State has some of the country’s lowest closing costs, ranking 11th for the least expensive closing costs. For comparison’s sake, the national average is $6,087.

But homebuyers in Illinois should expect to spend more than $2,000. That’s because ClosingCorp’s data excludes common closing costs such as loan origination fees and private mortgage insurance (PMI). Loan origination fees to set up your mortgage can cost up to 1 percent of your purchase price while PMI can be as high as 2.25 percent of your home loan. ClosingCorp also didn’t take state-specific expenses into account. In some parts of Illinois, for example, homebuyers may need to pay for a land survey. 

Home values have also increased exponentially in Illinois. By the end of July 2021, the average home price jumped by 12.6 percent from $233,500 a year ago to $263,000, according to Illinois Realtors market data. 

Keep in mind, closing costs will fluctuate depending on the price of your home, where it’s located, and the complexity of the sale.

What’s Typically Included in Illinois’ Closing Costs?

Closing cost expenses start tallying up as soon as you apply for a home loan. If you’re curious about what your closing costs entail in Illinois, here’s a closer look:

Loan Origination Fees

Home loans don’t come for free — your mortgage broker will charge loan origination fees for all the administrative work involved in your home loan application. Loan origination fees should be about 0.5 percent to 1 percent of the loan amount. This amount will vary, depending on where you live: Illinois Realtors reported the median home price in Kankakee County at $180,000 as of July 2021, whereas in the Chicago Metro Area, single-family homes came with a median price tag of $310,000.

Credit Report Fees

During the underwriting process, your lender will check your credit score before offering you a loan. Expect the lender to pass along this expense to you. If more than one borrower is involved, double this expense because your lender will need to pull both of your credit reports. 

In Illinois, this could cost up to $200 for each person on the mortgage application.

Escrow Fees

In Illinois, title companies, lenders, and lawyers can assist with closings. You may decide to hire a title company to carry out several jobs, including holding onto your funds in an escrow account.

Escrow is a financial arrangement where a neutral third party — in this case, the title company you’re hiring — holds onto your payments, including your earnest money deposit, in a separate account until closing. 

Your title company guides you through a checklist of things you need to have completed by closing, like buying adequate title insurance policies and executing a title search, to make sure you close on time without any hiccups along the way.

Typically, buyers and sellers split the escrow costs.

Attorney Fees

Most standard residential real estate contracts in Illinois contain an attorney review clause. So it’s in your best interest to hire a real estate lawyer to review your contract once the seller accepts your offer. 

You may also want to bring in a lawyer if your home purchase is complex, such as you’re buying from outside the state, the property has physical damage or the area is prone to adverse weather.

The cost of hiring a real estate attorney in Illinois can vary, depending on how much heavy lifting you’ll need your lawyer to do. Some real estate attorneys will charge a flat fee while others may bill by the hour.

Title Search and Title Insurance

Your title company, lender or attorney may insist on a property title search on your potential home. A title search is a thorough review of your home’s title history to confirm the seller has the right to transfer ownership. 

Ordering a title search is a step in the closing cost process whether you’re buying a brand-new build or an existing home.

After your title search is complete, you’ll likely need to buy title insurance policies for both you and your lender. Title insurance protects both parties in case of “defects in title,” which is basically when something is missed during the title search or there are claims on the property. 

In Illinois, buyers typically pay for the lender’s title insurance premiums while the seller will cover the owner’s title insurance premiums. This is a one-time expense, so the insurance applies for as long as you’re the homeowner of the property you’re about to purchase.

Real Estate Transfer Tax

Transfer taxes are local and state government taxes that are paid as the seller transfers the home to the buyer. They could be listed as a deed tax, mortgage registry tax, or stamp tax on your closing costs bill. Some states, including Illinois, even charge a recording fee for this transfer of property.

In Illinois, you may be faced with state and county transfer taxes, depending on where you live. The state’s transfer tax is set at a rate of $0.50 per $500 of property value. On top of that, you could pay an additional tax of $0.25 per $500 for county transfer taxes.

Sellers usually pay for transfer taxes, but this isn’t set in stone. You and the seller may allocate this expense to you during negotiations.

Property Taxes

There’s no better rite of passage into homeownership than paying property taxes. In Illinois, they’re a pretty penny, to the tune of an average of 1.73 percent of a property’s assessed fair market value. For a home priced at a median value of $202,000, the median tax comes to $3,507 each year.

Illinois has some of the highest property taxes in the United States, so make sure you budget for this expense. Property tax payment dates vary depending on the county you live in, so watch out for due dates.

Homeowner’s Insurance

Regardless of where you live, your lender will require you to take out homeowner’s insurance and have the first six months to a year of coverage paid in full at closing. Homeowner’s insurance is crucial to have in effect by closing because it’ll cover any physical damage to your home caused by fire, wind, vandalism or theft.

This is a “prepaid” expense, meaning it must be paid in cash at closing and can’t be rolled into your home financing.

Surveying Fee

Your lender or your title company may recommend a property survey to establish the precise borders of your potential new home.

A survey could cost up to $500 in Illinois, depending on the size of your property.

Appraisal and Home Inspection

Before your lender decides it’s safe to transfer the funds, your potential new home will need to pass an appraisal and home inspection.

Before closing, the lender will send a third-party appraiser to your new home to make sure it’s priced at the right value. The appraiser will scan the home, its size, features, and condition to determine how it stacks up to homes priced similarly in the community to determine its fair market value.

With a home inspection, you’ll hire a professional to make sure everything in the new home is in good running order. Your home inspector can also flag any issues that you may want to ask the seller to fix before finalizing the deal.

The buyer pays for these professional assessments. Expect to spend about $300 to $600 for each service in Illinois.

Private Mortgage Insurance

If you aren’t providing a 20 percent down payment, your lender will expect you to buy private mortgage insurance, which allows you to qualify for a conventional loan. While you’re the one paying for the insurance, the coverage is to protect the lender in case of loan default.

PMI isn’t included in the ClosingCorp tally of closing costs expenses, but it typically ranges from 0.25 percent to 2.25 percent of your outstanding loan balance, depending on the size of your down payment and your credit score.

How Can I Lower My Closing Costs in Illinois?

Facing some sticker shock after that lengthy list of expenses? But there are a number of ways savvy homebuyers can help lower this cost. 

Closing Cost Assistance

One key strategy is to take advantage of Illinois’ homeownership assistance programs. They’re generous programs worth considering and the most effective way to put a dent in your closing costs final expense.

Start with researching the Illinois Housing Development Authority’s slate of programs. For example, the IHDA Opening Doors Mortgage Program provides $6,000 in down payment and closing cost assistance that’s forgiven over the course of five years if you use your home purchase as your primary residence for that period. The program applies to first-time and repeat homebuyers.

The IHDA Access Repayable Mortgage Program offers down payment and closing cost assistance of up to $10,000 via an interest-free loan that can be repaid over 10 years.

Zero in on local homeownership programs, too. From Chicago to Normal, there are initiatives to help you save cash on your closing costs.

Get Your Finances in Shape

Your mortgage is a debt you may be paying off for decades to come. With this in mind, the interest rate you secure on your home loan is a deciding moment in the homebuying process.

Dedicate some time to getting your finances in great shape before talking to lenders. It’s worth the effort: Lenders are more inclined to offer a lower interest rate and more competitive terms to borrowers with a higher credit score, which could save you thousands of dollars over the lifetime of your mortgage.

Pay down your debts to keep your debt-to-income ratio low and make sure you aren’t skipping or late for any loan payments. 

Try to save close to the 20 percent down payment threshold too. This way, you’ll have less to pay in PMI. Even if you only have a 15 percent down payment, once you reach 20 percent equity, you can drop PMI.

Comparison Shop

Take your time to compare several title companies, inspectors, or surveyors. You can also compare home loan offers from various lenders until you find the best fit. Read reviews from previous customers, ensure the vendors are appropriately accredited, and then look at various price points so you know you’re getting the best deal.

Some title companies or lenders have a list of go-to professionals on hand that they’ve approved. Using their referrals may come with steep discounts.

Negotiate Fees

When you receive your paperwork, carefully read the lender’s Closing Disclosure form to grasp what fees and services you are asked to pay.

If you have an established relationship with your lender, you could ask them to omit certain expenses from the final bill, or you could ask to stagger these expenses so they’re paid throughout the homebuying process instead of all at closing. You can even try to negotiate the removal of some fees, such as rate lock fees, loan processing fees, and broker rebates.

Seller Concessions

Buyers can negotiate with sellers to pay for some — or all — of their closing costs. Or if you’re building a new home, you could ask your builder to cover closing costs so you can purchase upgrades.

No-Closing-Cost Mortgages

Another option is a “no-closing-cost” mortgage. In this case, the lender agrees to pay for part or all of the closing costs, but the buyer pays a higher interest rate. In the long run, this could cost the buyer more money because of the bump in the interest rate but for some homebuyers, it may be their best choice.

Adding Closing Costs to Your Home Financing

You may want to roll your closing costs into your home loan. This means you’re off the hook for paying for those expenses on closing day, but you’ll make up for it via monthly mortgage payments that will be a bit higher. Ultimately, you’re paying interest on the closing costs tacked onto your first mortgage. 

Check with your lender to see if this option is available. Keep in mind, not all closing costs can be included because some, such as homeowner’s insurance, must still be paid upfront.