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  • Writer's pictureNathan Zarcaro

Illinois Closing Costs for Buyers: 5 Ways to Pay Less in 2023

Updated: Oct 12, 2023


Nobody likes closing costs. Paying them feels like wasting money, but they are a necessary part of the home buying process.


Residents of Illinois are familiar with this reality.


With Bankrate reporting that the average Illinois closing costs now topping $6,000, buyers in The Land of Lincoln pay significantly more on average than buyers in neighboring Indiana and Missouri.


But the picture is not all bleak. In fact, many buyers are unaware of the various strategies at their disposal to lower their closing costs. Here are five ways for Illinois buyers to pay less in 2023 and beyond.


Related: Check out closing cost guides in Minnesota, Ohio, and Wisconsin.



What are closing costs?


Closing costs are the list of expenses that you incur as part of the home buying (or home selling) process. You will encounter various fees, payable to your mortgage lender/bank, title company/real estate attorney, and other related parties.


The largest and most notable of these expenses include:


  • Loan origination fee

  • Mortgage underwriting and application fees

  • Title search

  • Title insurance

  • Home appraisal fee

  • Prepaid property taxes

  • HOA fees

  • Survey fees


There may be other incidental fees, like courier and credit reporting expenses, for example, but these are the bulk of the expenses you may be responsible for.


Usually, when you close in your title company's or real estate attorney's office, you’ll bring a bank check for the total amount owed, but it is possible you may be asked to wire the money instead.



Illinois closing cost calculator


How much are closing costs in Illinois?


Earlier, I mentioned that the average buyer in Illinois now pays about $6,000 in closing related expenses. With the median IL home now priced at about $272,000, according to Redfin, this means that buyers can expect to pay about 2.2% of the purchase price of their home in closing related expenses.


This can vary by town, county, and municipality, so it is a good idea to budget for your closing costs to exceed 3% of your home's sale price, just in case.


Since certain expenses are relatively fixed regardless of the price your new home, those that buy cheaper homes may end up paying a larger percentage of the purchase price.


The largest determining factors on what you could owe are:


  • The property tax assessment in your new city or town

  • Whether your new home is part of a homeowner's association

  • Whether you close in the beginning or the end of a month



1. Property taxes in Illinois


Property taxes across the state vary greatly in different areas around the state. The five counties with the highest average effective property tax rates are:


  • Winnebago County - 2.99%

  • Kendall County - 2.94%

  • DeKalb County - 2.87%

  • McHenry County - 2.87%

  • Lake County - 2.83%


Meanwhile, the following counties have the highest tax rates:


  • Hardin County - 0.84%

  • Pulaski County - 1.10%

  • Gallatin County - 1.21%

  • Wayne County - 1.26%

  • Alexander County - 1.29%


A $300,000 home would carry an annual tax bill around $8,970 in Winnebago County, but only around $2,520 in Hardin County.


This difference in property tax rate will lead to different tax bills, which will consequently impact your closing costs, since you'll need to pay for a number of months of property taxes upon closing.



2. Homeowner's associations


Whether your new property is part of a homeowner's association will also impact your closing costs, since HOAs often carry transfer fees and other miscellaneous expenses.


These fees probably won't top a few hundred dollars, but it is still good to be prepared.



3. The date of your closing


Another variable that plays a large role in determining your closing expenses is the physical date on which it occurs. It is common to close as late in a month as possible, since you'll need to prepay mortgage interest for the remainder of the month.


Even a manageable $300,000 mortgage in its early days can have monthly interest obligations of over $1,000, so this could be a good idea to save some extra money.



Common Illinois closing costs


Let’s now explore the most common closing costs that Illinois buyers will pay.



1. Loan origination fee


Nationwide, most mortgage lenders charge you a loan origination fee for getting your mortgage all squared away. Typically, this origination fee typically costs between 0.5% and 1% of the amount that you’re borrowing.


So if you’re purchasing a $300,000 home have a $50,000 down payment in our financing the remaining $250,000 you can expect your loan origination fee to be between $1,250 and $2,500.



2. Mortgage application and underwriting fees


You can also expect to pay between $400 and $800 in mortgage application and underwriting fees.


Your lender or bank will assess these fees in exchange for processing your application and completing the underwriting process necessary to approve you for a home loan. Sometimes, these fees can be negotiated.



3. Establishing your escrow account


You’ll also want to be prepared to establish something known as an escrow account.

Typically included in your expenses will be a number of months of real estate or property taxes, as well as a prepaid year of homeowner's insurance on your new home.


The bank will hold this money in escrow and pay your property tax and homeowner's insurance bills as they come due. On an ongoing basis, part of your monthly mortgage payment will also go to funding your escrow account.



4. Title search


Your title company or real estate attorney will also perform what is known as a title search on your new property. This title search is intended to find any legal issues with your new home, including any liens, undisclosed property owners, or any other legal issues.


Generally, a title search costs $200-$500. Usually, title searches are mandated by your lender, but you should still have one conducted even if not.



5. Title insurance


Title insurance protects you in the event that your real estate attorney or title company fails to pick up on a problem while conducting a title search. Title insurance is a one-time fee paid for at closing that normally costs between $300 and $1000.


This is money well spent in the event that a legal issue arises in the future. Most often, title insurance is mandatory since your lender is also trying to protect their own interests.



6. Home appraisal


A lender requirement, your home will need to be appraised by an independent home appraiser prior to close. Banks mandate this to protect their interests and assure that they are not loaning you more money than the home is intrinsically worth.


Most lenders are required to cycle through a list of approved appraisers in your area. When my wife and I bought a house in June of 2022, our home appraisal cost around $500.



7. Other miscellaneous fees


There will be other fees that pop over the course of the home buying process too. Common examples include things like credit reporting fees ($25-$75), courier fees, and other miscellaneous items.



5 ways to lower your Illinois closing costs


As I alluded to, you have options to limit what you'll pay in closing expenses. The five best strategies at your disposal are:


  1. Shop for title insurance

  2. Negotiate with your lender

  3. Take a no closing cost/no origination fee mortgage

  4. Buy in a low real estate tax area

  5. Pursue closing cost assistance programs



1. Shop for title insurance


Your mortgage lender is likely to mandate a title insurance policy, which protects you (and them).


They will likely have a policy or a connection for you to use, but you likely have the option to shop around for a cheaper policy. I recommend that you contact several different title insurance carriers to get a flavor for costs in your area.


Since policies may be over $1,000, it is definitely worth shopping around. You easily could be able to save a few hundred dollars.



2. Negotiate with your lender


In slower times for mortgage activity (like when interest rates are high), you have some leverage with your lender, as they feel pressure to close as many loans as possible.


It doesn't hurt to ask your lender if there is any wiggle room on any of the fees they've provided to you in your loan estimate, which will be provided to you within three days of completing your mortgage application.


One option your lender may give you is something known as lender credits. Lender credits will cover some of your closing costs but may leave you with a higher interest rate on your loan. Generally, I don't like credits for this reason, but make sure to do the math before you decide whether they may be helpful for you.



3. Take a no closing cost/no origination fee mortgage


Some buyers may opt to take no closing cost mortgages.


For whatever reason, it feels like most buyers aren't even aware this option exists. Similar to lender credits, taking a no closing cost mortgage will likely lead to a higher interest rate on your loan, so you'll have to decide what to do.


Another option is a no origination fee home loan, offered by Ally Bank, Better.com, PenFed Credit Union, Navy Federal, and others.



4. Buy in a low property tax county


Since you'll likely need to pay at least a couple of months' worth of real estate taxes upon closing, buying in a lower taxed county can save you on both your closing expenses and your ongoing escrow payments on your home loan.


A $2,000 annual difference in taxes could save you $500 if you need to pay three months at close.



5. Closing cost assistance programs in Illinois


Fortunately, the Land of Lincoln has a number of programs in place to help first time home buyers and other qualifying buyers to more easily afford the initial expenses on their new properties.


In fact, the Illinois Housing Department Authority offers their own program that offers up to $6,000 in assistance to use towards your down payment or closing costs.



IHDA Access Forgivable Mortgage program


Under the terms of the IHDA Access Forgivable Mortgage program, you may be eligible to receive up to 4% of the purchase price of your home, up to a total of $6,000.


You can use this financial assistance to use towards your closing costs and or your down payment. Under the terms of the program, you'll take out a 30 year fixed rate mortgage with an affordable interest rate.


Those that meet the minimum credit score and other requirements will have the $6,000 forgiven over ten years in monthly increments.


You may also consider the IHDA Mortgage Opening Doors or SmartBuy programs.



Conclusion


Illinois home buyers have to contend with elevated home prices, high interest rates, and closing costs. But by using the tips


What closing cost related questions do you have? Put them in the comments below and I'll answer them!



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About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and has worked for industry leaders in both finance and healthcare.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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