How can we reduce closing costs in USA while purchasing a home for first time home buyers

Question

What are the several known and unknown closing costs associated while purchasing a house in USA? How can we significantly reduce closing costs ?

Answer 1

Many of the closing costs aren't really under your control, but looking at my last settlement statement, there are a few things a buyer can control. The items below are the things that are under a buyer's control, but do note that some of them may not be practical in many situations. (I'm also not counting your down payment as a "closing cost", though it is part of the money due at closing.)

• Close late in the month. If you have a loan, you will owe interest up front on all of the days remaining in the month in which you close, so minimizing that number of days will reduce your costs. Even if you don't have a loan, the seller will have paid things like property taxes and HOA dues that you will have to reimburse for the days in the month that you own the house.
• Don't pay points on your loan. Points are prepaid interest that you pay in exchange for a lower interest rate over the life of the loan. You usually have a choice about whether to do so.
• Don't have a loan at all; pay cash. In addition to prepaid interest, the lender's fees will be part of your closing cost. If you don't have a lender, then you won't incur those fees. Also, with no lender you can forgo the appraisal, which can run upwards of $500.
• Shop around for your providers for insurance, settlement, and surveying. All of these will charge you fees that will be due at settlement. You can't eliminate them entirely, but you can sometimes save a bit by shopping around.

The only other thing I see on the statement that a buyer can avoid is owner's title insurance, which is technically optional (the lender's title insurance is required, if you have a loan). However, I don't recommend going without it, so I didn't list it. Most of the rest of the costs are taxes and such that you're just stuck with.

You also asked whether there are any "unknown" closing costs. There shouldn't be anything unknown or unexpected. You should receive something called a "good faith estimate" that will outline all of the costs that you will be expected to pay at closing. The estimates will not be exact, but in my experience they have always been reasonably close.

Good luck with your purchase! (Assuming that's why you're asking)