Home Buying in Chicago>Question Details

Chicago J,  in Chicago, IL

On a new construction, how are closing costs, assessments, and taxes handled.

Asked by Chicago J, Chicago, IL Thu Mar 19, 2009

I know you can ask the seller to pay closing costs. Can you ask the seller to include a certain amount of prepaid assessments and/or taxes.

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Jae, closing costs are handled the same for a new construction property (SFR, condo or townhome) as with a resale (existing construction) property. Closing costs include lender fees, title, prepaid and escrows. As for the latter (escrow of property taxes), most lenders will qualify, approve and close your mortgage based on a fully assesses value for property taxes. In the Chicago area, this can be somewhere between 1.75% - 2.50% (depending on County and perhaps property type) of the market or appraised value.

A request for seller concessions or credits toward assessments and taxes will depend on the details of your mortgage financing. The lower the LTV of financing, a higher percentage of seller concessions may be allowed at the closing table. This part is better addressed by your real estate attorney who will negotiate what is fair and a win/win for you and seller.
0 votes Thank Flag Link Thu Mar 19, 2009
Dear Jae,

I just wanted to add that it is possible (though not at all likely) that a lender might allow you to receive up to a total of 6% of the purchase price as a concession to you at the closing. Only a few lenders allowed that sort of credit previously, and in this increasingly tight credit environment it is most likely that the lenders will not allow more than 3% of the purchase price as any type of concession or credit.

Good luck to you.

Sincerely,

Christopher Thomas
Broker Associate, Sudler Sothebys International Realty
773-418-0640 (cell)
christopher.thomas@sothebysrealty.com
Web Reference: http://www.myagentchris.com
0 votes Thank Flag Link Thu Mar 19, 2009
At closing, you are only responsible for taxes and assessments from the date of closing forward. The developer is responsible for the charges up to the date of closing. This settlement is handled by proration.
Closing settlements on new construction and existing property are regulated by RESPA (Real Estate Settlement Procedures Act). The Settlement form is standardized and pro-rations are done to the day, typically assuming a 30 day month.

Many times on new construction, taxes have yet to be assessed by the county. The lender will usually use an estimate between 1.5-2.0% of the purchase price for the tax escrow. In my experience, this is usually a close estimate once the actual tax bill is generated. Additionally, make sure your attorney pays specific attention to the basis for the proration when your buying a new unit. For example, if the developer is paying the proration based on the prior assessment of a vacant lot, there may be a shortfall in the taxes when the actual bill is generated for a newly improved property. A good real estate attorney can help you understand proper prorations. Also, note that your real estate contract will specify the tax proration rate. For example, it is not uncommon to see taxes at a closing in Cook County prorated at 110%. Cook county taxes are paid in arrears, which means that the tax bill for a portion of time that the developer owns the property has not been levied. There could be an increase in the taxes for a portion of their ownership that is not known until after closing. The extra 10% on the pro-ration rate is there to help make up for any potential increases.

Talk with your lender or attorney about closing statements. They can get you a blank HUD so you can see how the credits/debits are tabulated at the closing.

Best of Luck.
0 votes Thank Flag Link Thu Mar 19, 2009
So does the taxes and assessments when I purchase a place, begin at a prorated basis from closing. I.e. if i buy in april, I only pay the assessments and taxes that are due from that point on and the developer has already covered costs for taxes and assessments up to that point.
0 votes Thank Flag Link Thu Mar 19, 2009
Closing costs are handled similiarly to existing homes and a reputable mortgage lender will provide you an estimate in advance when you decide on a property. Assessments and taxes are determined by like homes in the vicinity of the new construction.
Web Reference: http://www.BonnieCrafa.com
0 votes Thank Flag Link Thu Mar 19, 2009
There is never any standard way of handling any transaction. All aspects of the transaction are negotiable- subject to the law of course. The bottom line is that any money credited to you is looked at as a closing cost credit so it doesn't matter what it's for. In this market, 3% is the max you're likely to get- but again that isn't a golden rule.

Scott Newman
Newman Realty
0 votes Thank Flag Link Thu Mar 19, 2009
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