Buying a house is a big decision, and your closing day may seem like it’s far away. While there are many steps before closing, the date you close can make a difference.
Find out more about closing dates, their significance, and how to choose the ideal time to close.
When you complete the last payments and fees and obtain complete ownership of your new house, the closing process takes place. Closing is more involved than just handing the seller a check and taking the keys. The walkthroughs, final loan approval, and inspections that precede it may take several weeks, but everything comes to an end the day you sign closing documents.
Closing day is the final step in completing your real estate purchase. You set this date when you negotiate with the seller, usually just after they formally accept your offer. Once you complete the necessary paperwork at closing, you take ownership of the property.
Choosing the right time to close on a house can save you hundreds, if not thousands of dollars. But when is the best time to close? It depends on a few factors which we’ll explore in this article.
Why Closing Early in the Month Isn’t “Skipping” a Payment
You might think that closing early in the month means skipping a mortgage payment, But that’s not quite true You’ll still be responsible for paying interest for the days between closing and the first of the next month,
For example, if you close on February 1st, you’ll have to pay 28 days of interest. But if you close on February 27th you’ll only have to pay 2 days of interest. That’s a difference of $766 in interest payments!
Early vs. Late Month Closing Example
Let’s say you’re buying a $250,000 house at a 4% interest rate. You will be required to pay $766 in interest on February 1st if you close on that date. But if you close on February 27th, you’ll only pay $54. 78 in interest.
Advantages of Closing at the Beginning of the Month:
- Longer delay between paying closing costs and first mortgage payment
- Less difficulty scheduling your closing due to choosing a lower demand time
- Less risk of error and stress due to the end-of-month rush
Disadvantages of Closing at the Beginning of the Month:
- Hundreds or even thousands of dollars spent on an additional interest payment
Other Considerations:
- HOA Fees: Some homeowners associations may charge additional fees if you close later in the month. However, these fees are likely to be less than what you’re spending in interest by closing earlier.
- Seller Concessions: In a buyer’s market, buyers can often secure seller concessions, including the seller paying the buyer’s closing costs. This means that there’s no downside to the buyer in securing an early closing.
- Current Lease: If you’re renting, you can time your closing to avoid paying extra rent. Just keep in mind that if you close early in the month to avoid paying more in rent, you should include the extra interest payment that you’ll incur through an early closing when you make your calculations.
What About Refinances?
Refinances are generally more straightforward when it comes to timing. You don’t need to worry about paying extra interest or delaying your first mortgage payment. However, there is the matter of avoiding overlapping interest payments.
How to Schedule Your Refinance to Avoid Overlapping Interest Payments
If you’re refinancing through the same mortgage lender, or if the loan is not for your primary residence, you shouldn’t need to worry about timing your closing date at all. However, if you’re refinancing through a different lender, a rescission period will delay the funding of your new loan for 3 days. This delay could lead to a longer overlap in interest payments.
The Bottom Line: Close Later in the Month to Save
For most home buyers, closing later in the month will save hundreds of dollars. The end of the month is the busiest time for closing for a reason – it may feel like a hassle to close at “rush hour,” but your budget will thank you.
Additional Resources:
- Closing Costs: What Are They, And How Much Will You Pay?
- What Is Cash To Close?
- What To Expect When Closing On A House Remotely
Still have questions? Talk to a Home Loan Expert today.
What happens on your closing date?
Depending on your state, you will meet with a title company representative or an attorney on the day of the official closing, usually at their office. Your real estate agent and your attorney or legal representative may join you for closing. The seller may also be there, or they may pre-sign the necessary documents.
During closing, you’ll:
- To close the deal, pay the full amount owed, including the remaining down payment and expenses. You will be given the required amount of money to close by your lender or closing representative; you might need to bring a certified check or have the money wired electronically.
- Verify that the transfer documents have been pre-signed or watch the seller sign them.
- Sign a deed of trust, a mortgage note, and a settlement statement, among other documents.
Although it seems easy, closing can take an hour or two due to the amount of paperwork that needs to be completed.
Can your closing date impact your first mortgage payment?
Normal deadlines for your first mortgage payment are the first day of the second month following your closing. You won’t have a mortgage payment for nearly two months if you close around the beginning of the month, but you’ll still need to bring extra cash to closing to pay the interest. Your first payment will be made in a little over a month if you close at the end of the month.
Delaying your closing to avoid having to make your mortgage payments could allow you to have more money for closing costs and moving expenses. This can be appealing if you’re rolling most of your closing costs into your loan.
Should You Close At The End Of The Month
FAQ
Should I close at the beginning or end of the month?
What is the best day of the month to pay your mortgage?
What day of the week is best for closing?
How long after closing is the first payment due?
Should a closing date fall in the middle of the month?
If you don’t know what to do, you can always make your closing date fall in the middle of the month. That way, you can avoid spending a ton of money on interest and benefit from having a month and a half left before the mortgage payments kick in. When it comes to picking a closing date, there is no one-size-fits-all approach.
Is a closing date a good idea?
But many don’t know that their closing date can also have a big impact on costs. Closing toward the end of the month could help you save thousands in closing costs and prepaid items (if those are required upfront). But there are risks that come with trying to time your mortgage, too.
What happens if you close a mortgage later in the month?
When you close later in the month, you’ll owe less interest on your mortgage since mortgages are paid in arrears – the end of the month for the previous month. When a new mortgage loan is made buyers have to pay all the interest due from their closing date to the end of the month as part of closing costs.
Should you close your home at the end of the month?
The bottom line is that, all other factors being equal, most people will want to close at the end of the month in order to avoid paying extra mortgage interest. However, for some there are also a few complicating factors to consider, like an existing lease or homeowners association (HOA) fees on the new home.