Understanding What Condo Closing Costs Are
Getting ready to close on a condo? Or just getting started? This is a big purchase, so it’s critical that you understand the costs you’re responsible for. But first, just what exactly are closing costs?
Condo closing costs are fees that are charged for obtaining a mortgage. While you can include your down payment in total closing costs, there are additional fees that you must pay (we’ll cover those shortly). First, let’s review what will be your largest fee: the down payment.
A down payment is money that you provide during a real estate transaction. The down payment is a percentage of the property’s sale price. So, for a $500,000 condo, a 20% down payment is $100,000, a 10% down payment is $50,000, and so on. While there is essentially no limit to the size of the down payment you make, there are minimum requirements.
Depending on your loan program, you may be required to put anywhere from 0% to 20% or more down. Veterans and qualifying service members can take advantage of a VA loan with no down payment requirement (the condo must on their approved list, however). First-time buyers can use an FHA home loan with only 3.5% down required (again, the condo must be approved).
The overall loan amount also factors in. In certain high-cost areas, such as downtown Chicago, a higher down payment may be required since your loan amount may exceed the conforming loan limit. Also, note that putting less than 20% down will result in mortgage insurance — an additional fee added to your monthly payment.
Additional Condo Closing Costs
Beyond the down payment, you’ll also have to pay other fees that are charged as part of the mortgage process. Some lenders may offer credits for some of these fees as specials or waive them entirely, but that depends on the lender. Examples of these closing costs include an application fee, processing fee, origination fee, and underwriting fee.
Additional condo closing costs include homeowners insurance, attorney fees, title fees and title insurance, municipal fees, credit report fees, discount points, and recording fees. Fee amounts will vary depending on where you’re moving, what mortgage company you financed the condo with, the attorney you’re working with, and so on.
You’ll also have to pay City of Chicago Transfer Tax, which is $7.50 per $1,000 of the real estate transaction. On a $500,000 condo, this tax would be $3,750.
Know the Condo Closing Costs You’ll Pay
Part of the loan process includes two documents: 1) a Loan Estimate (LE) and 2) a Closing Disclosure (CD). Within three days of applying for a mortgage, a lender is required to provide you with the LE — a good faith estimate of your interest rate and closing costs. Within three days of closing on your condo, you’ll receive the CD, which details the final costs you’re required to pay.
Compare these two documents closely. The rate and closing costs should not have changed significantly. While some closing costs can change without limit, others can only change by 10% — or not at all. If the closing costs on the CD exceed the costs on the LE beyond acceptable limits, your lender has to refund the excess to you within 60 days of closing on your condo.
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