Closing Costs Part 4 – Miscellaneous Charges

In the first three installments of my series on closing costs, I addressed real estate tax credits, title charges and lender costs.  This fourth, and final, last installment will address the last category of closing costs – everything else.  As you review your closing costs with your attorney at the closing table, it may feel like everyone is taking their pound of flesh from the transaction.  That is because it is essentially true.

Transfer Taxes

Whenever you buy or sell real estate, the government sticks its hand in your pocket.  The amount of the tax depends largely upon the location of the parcel.  The State of Illinois always gets $1 per $1,000 of the purchase price and the county gets half of that.  Municipalities have the authority to set their own individual taxes.  Some have none at all (eg. Palatine), and some are fairly hefty (eg. Chicago – $7.50 per $1,000 of the purchase price for the buyer and $3.00 per $1,000 of the purchase price for the seller!).  Unfortunately, in most instances these taxes are unavoidable.

Real Estate Broker Commissions

The brokers are paid from the Seller proceeds.  The amount they are paid is determined by the terms the listing agreement.  The brokers’ commission is usually 5% or 6% of the purchase price.  Regardless of the total commission, the listing broker gets a broker co-op commission of 2.5% of the purchase price paid by the listing broker from the total commission.

Recording Fees

The title company will record the deed and mortgage at the county recorder’s office to let the whole world know that you now own the property (and a mortgage on said property).  Of course, the buyer is expected to pay the recorder’s for this.  The cost is usually between $120 and $130 total.

Survey

If the property is a single-family, detached residence, the seller is required to provide the buyer and title company with a survey.  The cost of a survey is roughly $450.  If the property is a condominium, no survey is necessary.

Attorney Fee

Obviously, this is the most important cost of all!  It is crucial to have a good attorney (like me) to protect you when hundreds of thousands of dollars are at stake.  Attorneys, such as myself, who handle residential real estate transactions charge a flat fee paid at closing.  At the time of publication, LoftusLaw charges $500.  What a bargain!

Thus concludes my series on closing costs.  Your experience may vary, as each transaction is unique.  If you have questions about closing costs, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

New IHDA Program Offers Up To $50,000 In Assistance To Under Water Homeowners

The painful memories of the housing bubble are quickly fading amidst the red-hot real estate market here in the Chicago area.  However, the good news is not universal.  Some homeowners live in sort of a limbo where they can just afford their mortgage payment, but they cannot possibly sell their home due to the fact that they owe more than the property is worth.

There may be hope for some of you.  The Illinois Housing Development Authority (IHDA) has introduced a program for qualifying homeowners to receive up to $50,0o0 toward the balance due on their mortgage and refinance into a more affordable loan based on the market value of their home.  The following eligibility requirements must be met:

  • Current on your mortgage for at least 12 months
  • Live in the home as your primary residence
  • Credit qualify for a new IHDA mortgage through a participating lender
  • Be within IHDA’s income and home price limits 
  • Credit score must be at or above 640
    • 640 for Conventional, VA and USDA
    • 660 for FHA
  • Pre-assistance combined loan-to-value must be greater than 110%
  • Post-assistance loan-to-value will be 90-97%

The income and home price limits for the Chicago area vary depending on the number of people in your household and whether your home is new construction, existing or multi-unit.

If you qualify, I would strongly encourage you to reach out to one of the participating lenders.  Free money, after all!

If you have questions about this program, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

Closing Costs Part 3 – Lender Charges

The third installment of my posts on closing costs focuses on charges you may incur at closing from your lender.  The vast majority of buyers do not have the cash to plunk down a few hundred thousand dollars to buy a home.  As a result, most real estate transactions involve a loan through a mortgage broker.  Not surprisingly, lenders do not work for free, and there are a number of costs you can expect to incur in connection with borrowing their money.

Unlike title charges and real estate tax credits, lender charges vary quite a bit depending on the lender and loan product you choose.  However, there are some charges and costs that you can generally expect to see on the closing statement.

Origination Fee

Lenders often charge an origination fee for a new loan.  Ostensibly, this is the charge for the work necessary to vet you as a borrower and process the loan.  This charge is typically in the range of $1,000, although it varies from lender to lender.

It is worth mentioning, that the lender is making much more than just the origination fee in terms of profit from originating the loan.  Mortgage brokers make the bulk of their money on something called the yield spread premium.  The yield spread premium is the difference between the interest rate at which the broker can borrow money from the end lender and the interest rate at which you borrow the money from the broker.  That may sound a little unfair; however, it is important to understand that, as a borrower, you do not have access to end lenders who provide the funds.  In addition, banks the fund loans from their own money do not offer better rates than mortgage brokers.

Appraisal Fee

Whenever you borrow money to be secured as collateral for repayment of the loan, the lender wants to know that the collateral has enough value to repay the lender if you cannot.  Fair enough.  As such, part of the loan process involves having an appraiser determine the value of the property.  Typically, this costs somewhere between $300 and $500.

Miscellanous Fees

There are several fees you may see on the settlement statement of a relatively small amount, which I typically characterize as “junk” fees.  For example, there may be a credit certification fee ($10-$100).  This is the fee from the service used by the lender to obtain transcripts of your tax returns from the IRS.  Sometimes you will see a flood certification fee (usually around $10).  The lender wants to see whether the property is in a FEMA flood zone, and determine whether to make you pay for flood insurance.  You may also see a fee for obtaining your credit report (between $10 and $50).

Prepaid Interest

When you make a mortgage payment, you pay interest for the preceding month.  As a new borrower, your first mortgage payment will not be due until the beginning of the second full month after the closing date.  This leaves interest for the month of closing unaccounted for in the loan payments.  Since interest accrues daily, it is customary to pay the interest for the remaining day in the month of closing at closing.  This is not exactly a loan charge, but it is something you will need to pay at closing.  The amount varies depending on the amount you borrow, the interest rate and the time of the month you close.

Impounds

In most cases, the lender will set up an escrow account for the borrower to handle payment of property taxes and insurance.  Every month, the borrower pays some money into the escrow, and when the bills are issued, they are paid from the funds in escrow.  At closing the borrower puts some money into the escrow to get it started.  As with prepaid interest, it is not a charge, insomuch as the money still belongs to the borrower and will be used to pay the borrower’s property tax and insurance bills.  The amount that goes into the escrow varies depending on the amount of the annual tax and insurance bills and the time of year the closing occurs.

As mentioned above, the lender costs can vary quite a bit depending on the lender and loan product.  Do not necessarily be concerned if your settlement statement has additional costs or is missing some of these charges.  What you should do to make sure you are not taken to the cleaners is to hire a good real estate attorney, like me, to make sure the charges are accurate!

If you have questions about real estate closings, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

3 Negotiaton Strategies Sellers Can Use To Walk Away From Closing With More Money

Once you receive a decent offer for your home, you and the potential buyer will probably make the price the main focus of your negotiations.  As important as the price is, it is not the only contract term that determines how much money the Seller will walk away with from the deal.  Because the Buyer will likely be so singularly focused on the price, you may be able to gain valuable concessions from the Buyer along the way without much argument.  Here are three strategies you can use increase your bottom line without making a change to the purchase price.

Tip #1 – Tax Credit Percentage

A frequently overlooked contact term that directly affects the seller’s bottom line is the real estate tax credit. In Illinois, owners of real estate always pay the prior year’s tax bill.  As a result, a seller gives the buyer a credit at closing for unbilled taxes.  The credit is typically 105%-110% (the Proration Rate) of the the last tax bill, prorated through the date of closing.  A savvy buyer’s agent will make the offer with a 110% (or more) Proration Rate.  Your counter-offer should modify the Proration Rate to 105%, thereby reducing the credit given to the buyer at closing and putting more money in your pocket.  For example, 5% of a $10,000 is $500.  As they say, that’s not nothin’.  (For a more in-depth discussion of real estate tax credits, click here.)

Tip #2 – “As Is”

Another way a seller can negotiate some value is to include an “as is” provision in the contract. Although the buyer will still be allowed to have their professional inspection, the buyer is precluded from requesting repairs or credits based on the insepctor’s report.  Let’s face it, regardless of how immaculately you have maintained your home; the inspector will find “issues” to include in his report.  He needs to justify his fee, after all.  Every transaction is unique; however, I generally see sellers giving anywhere from $250 to $2,000 in credits or repairs for sometimes dubious inspection items just to keep the transaction moving forward.  By making the sale “as is” you can maintain your bottom line by cutting off the buyer’s leverage to request costly repairs to the property or monetary concessions based on the inspection.  This strategy is particularly useful in a sellers market, which is the case currently.  (For a more detailed discussion of ‘As Is’ contract provisions, click here.)

Tip #3 – Hire the Right Attorney

Come on.  You saw this coming, didn’t you.  Simply stated, real estate transactions involving the exchange of hundreds of thousands of dollars are not simple matters. These bits of advice are but the tip of the iceberg in terms of what an experienced advocate brings to the table for you.  LoftusLaw is a firm with its primary focus on residential real estate transactions. Our mission is to provide clients with personal, hands-on service, so that each client feels like they understand every aspect of their transaction. Attorney Patrick Loftus has handled residential real estate transactions in the Chicagoland area for 13 years. He is a member of the Illinois Real Estate Lawyers Association. Experience and personal touch are what sets LoftusLaw apart from the rest.

As always, I welcome your comments and questions, and especially your referrrals!  I can be reached at patrick@loftus-law.com or 773-632-8330.  I look foward to hearing from you!

Chicago Property Tax Rebates End Tomorrow

Many of us were caught by surprise when the second installment of the 2015 real estate tax bills arrived in the mail this past July.  Steep increases were the norm, especially for homeowners in parts of town that experienced healthy increases in property values over the past few years.  That’s the bad news.

The good news is that the City is offering many of us rebates of up to $200.  The amount can be more if you are eligible for a senior or enhanced grant.

From the City’s website:

     Eligibility:

     In order to qualify for a City of Chicago property tax rebate, homeowners must meet      all the following eligibility requirements:

  • Chicago Resident and Homeowner;
  • Received the Cook County Homeowners’ Exemption in the most recent property tax year;
  • Household adjusted gross income of $75,000 or less in 2015;
  • City of Chicago portion of property taxes increased on most recent tax bill;
  • Current on the payment of property taxes;
  • Do not owe real estate taxes on other property located in Chicago; and
  • Do not have City debt (e.g. parking tickets, overdue water bills). In cases where City debt is owed, the rebate will be applied to the debt.

For more details on the City’s “free” money, visit this link.  You can apply at any one of 26 neighborhood locations around the city.

Time is running short on this program.  However, if you are one of the many people who took this week off, here’s the perfect way to spend your Friday morning…

Happy New Year to everyone!  Hat tip to Curbed Chicago for the heads up on this program.  As far as I know, it was not very well publicized.

Why Should You Hire An Attorney To Buy or Sell Your Home?

Answer: Because you do not want to risk flushing your money down the toilet.

     You have probably heard people say that you don’t really need a lawyer for a real estate transaction.  Or you may be under the impression that real estate closings are easy for lawyers, and your real estate lawyer really isn’t doing much other than collecting a check at closing.  To be honest, I hope and pray that your lawyer does not have much to do, because a smooth transaction makes the herculean task of moving a lot less stressful.  Unfortunately, most real estate transactions will involve some unexpected hiccups, and that’s when having an experienced real estate attorney will save you from suffering a potentially catastrophic loss.

     Take for example the story of military veteran Danny Shedd, whose story is told in an article published by Vice.  (click the link to read more)  The article describes how Shedd is currently being evicted from the home he purchased, because the deed he received at closing incorrectly described some swamp land somewhere in the woods rather than the property he was trying to buy for his family.  This type of mistake is exactly the type of error that your real estate lawyer can identify and deal with before you hand over your hard earned savings for unihabitable swamp land.  If you tell me that I can spend $500 to save a little over $172,000, I would ask you where I mail that check!

     The bad news is that the best result Shedd can hope for is a refund of his purchase money from the Seller.  Even worse is that it will not be cheap to arrive at that result, and now he has to find a new home for his family. probably not be cheap for him.  Had he been represented by an attorney in the transaction, the mistake would likely have been discovered before Shedd plunked down $172,425 in cash for the wrong plot of land.

    If you have questions about real estate closings, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

     Shout out to Vice for the good content.

The Tax Bills Are Here!

The 2015 Second installment real estate tax bills for Cook County have been released as of 10:00am this morning.  For Chicago residents, this bill has been highly anticipated (dreaded) since the 2015 re-assessments were announced.  As I wrote earlier this year, may of you expect to get dinged pretty hard.

To see how bad the damage is, head over to the Cook County Treasurer’s website by clicking here.  Once there, click “continue” and enter your PIN.  If you do not know your PIN, head over to the Cook County Assessor’s website here.  Click “Dont know your PIN?” and enter your address.

LIFE PRO TIP!!!

If you are an owner occupant, and you do not receive a homeowner exemption, you are paying too much tax!!!!  The property tax information on the Treasurer’s website will indicate whether you have the exemption.  If you do not receive the exemption, and you qualify, please contact me immediately!  I will help you find the forms you need to submit to save hundreds immediately, and I will not charge you!

If you have questions about real estate taxes, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my oh page.  Cheers!

City closes $500M redevelopment deal for Old Main Post Office

“This project will create thousands of jobs and generate new economic opportunities for residents in our neighborhoods,” Mayor Rahm Emanuel said.

Source: City closes $500M redevelopment deal for Old Main Post Office

Hat tip to the Sun Times for this article on the Old Post Office.  This is exciting news for the South and West Loop neighborhoods!

Closing Costs Part 2 – Title Charges

In the second installment of my series on closing costs, I will tackle title charges.  Generally speaking, when you buy or sell a home, the closing of the transaction takes place at a title company.  The title company has two main roles: 1. escrowee and 2. issuing title insurance.  As escrowee, the title company receives funds from the buyer and lender and disburses the money at the end of the closing based on the parties instructions.  Title insurance insures the buyer’s clear title to the property.    Title companies don’t work for free, so there are some costs associated with the services they provide.

Escrow/Settlement Fee

This fee is for the title company’s escrow services, and if there is a lender involved, for the closer to be the eyes and ears of the lender at the closing table.  The amount of the fee depends on the purchase price of the property, and it generally runs between $1,100 and $1,900.  The buyer pays this charge unless it is a cash transaction, in which case the parties split the charge.

Owner’s Title Policy

The owner’s title insurance policy is purchased by the seller. To produce a title insurance policy, the title company first conducts a title search to determine any title defects in the public record.  Things such as mortgages, easements, mechanics liens, outstanding judgments, etc., are considered unpermitted title defects and must be removed by the seller prior to or at closing to pass clear title to the buyer.  In other words, if after the closing someone knocks on the buyer’s door claiming that the property is really theirs, the buyer has insurance to cover the costs of defending the claim and any losses sufferred as a result.  The cost of the policy is based upon the purchase price, and it ranges from $1,200 to $3,000.  The title company will also perform a second search on the day of the closing, for which it charges each side approximately $125.

Loan Policy

The loan policy is similar to the owner’s title insurance policy, except that it is insures the buyer’s lender from losses suffered as a result of title defects.  The buyer pays the cost of this policy, which generally costs around $500.  The lender may request coverage in addition to the standard loan policy in the form of endorsements, which generally cost an additional $150-$200 each.

Closing Protection Letters

Illinois law requires that the title company issue a closing protection letter to the buyer, seller and lender.  The letter offers protections to the parties in addition to those offered in the owner’s title policy and loan policy.  Specifically, if the closing funds or documents are lost due to fraud or negligence, the parties have a financially solvent entity (the title compay) from whom to recover.  The cost of this letter is $25 for the buyer and lender (both paid by the buyer) and $50 for the seller.

Chain of Title

The lender requires a 24-month “chain of title” report from the title company.  The purpose is to determine how many times the property has been conveyed over the preceding two years.  Several conveyances for steadily increasing amounts in a short period of time is one indication of mortgage fraud, and the lender may not fund the loan if it sees that kind of pattern.  The cost of the chain of title is $250 and is paid by the buyer.

“Junk Fees”

This is my description, not the title company’s.  The title company receives and sends a number of wire transfers, for which it charges roughly $40 each.  In addition, the title company will receive a loan package via email, which the closer will print for the buyer’s signature.  For this service, the title company will charge approximately $40.

There are additional costs which appear on the title invoice, which are collected by the title company, such as transfer taxes, recorder’s fees, etc.  Those are not what I would consider “title charges,” and I will cover those in a couple weeks.

You may be thinking to yourself, “Gee, that’s all great, but how do I figure out the title costs with any specificity?”  The good news, is that I have a tool provided by my friends at Citywide Title that will give you a fairly precise breakdown of all of the closing costs.  Please contact me at patrick@loftus-law.com or at 773-632-8330 to request a breakdown!  To see what my clients have to say about me, please visit me at avvo.com.

Estimate Your Closing Costs – Part 1

If you have ever bought or sold a home, you know that there are all sorts of charges that you incur in addition to the purchase price, which are known to most as “closing costs.”  We all know about them, but estimating the final number can be elusive if you are not familiar with the process.  In the next four emails, I am going to shed some light on calculating the closing costs, so that you can better understand what the home is really going to cost you as a buyer or what you can expect to walk away with as a seller.

Real Estate Taxes

The real estate tax credits at closing are only two, maybe three, line items on the settlement statement, but they are so significant that they deserve to be discussed all by themselves.

In Cook and the collar counties, real estate taxes are paid in arrears.  That means you are always paying last year’s tax bill.  On the closing date, there will always be taxes owed by the seller that have not yet been billed by the county.  Once the sale closes, the buyer will be responsible for paying those future tax bills.  The customary way to handle this problem is for the seller to give the buyer a credit at closing to cover those tax bills.  It is more secure that asking the seller for a reimbursement when the bills are issues and less cumbersome than putting money in an escrow to pay the bills.

The real estate tax credit is generally based off of the last known tax bill, which is then increased by 5%-10%.  The credit is prorated through the closing date.

As an example, let’s say that you close the sale of you home on February 15, 2016, which is the 46th day of 2016, and your 2014 tax bill was $5,000.  The 2015 bills are not out yet, so this is the last known tax bill.  If the tax credit is based on 105% of the last tax bill, your tax credit looks like this:

2015 – $5,000 x 1.05 = $5,250

2016 – $5,000 x 1.05 / 366 * 46 = $659.83

If the closing is a little later in the year, and the first installment taxes have been paid, the credit is reduced by the amount already paid by the seller.

In Cook County, once the second installment tax bill is issued, usually in July, that amount is used to calculate the tax credit.  In collar counties, the full year tax bill is issued all at once, usually in May.  Additionally, if taxes are owed at time of closing, that amount will be paid directly from the closing proceeds, in which case the amount paid is deducted from the real estate tax credit.

Importantly, real estate taxes can be very complicated.  Your attorney must conduct research to ensure that the credit contemplated in the contract is appropriate.  If the property assessment has jumped significantly (which happened in Chicago in 2015), an alternate method of calculating the credit is necessary to arrive at a fair figure.  Likewise, if there has been a successful appeal of the assessment, the credit should be reduced accordingly.  Choosing the wrong real estate attorney who is not familiar with real estate tax related issues can cost you thousands!

It is crucial to have the right professionals in place to protect you from coming up short come real estate tax time.  If you have questions about real estate taxes, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com.