If you are in the process of buying a house, you are probably wondering when you should close on your new home. You may have heard that it is best to close at the end of the month. Setting your closing date for the end of the month is a very common practice. However, there are pros and cons for closing at the end of the month. So let’s discuss both so that you can make an informed decision.
Pros for closing at the end of the month:
1. This will lower your initial out of pocket costs because it minimizes the amount of prepaid interest you will have to pay on your mortgage loan at closing.
• the interest on a mortgage starts the day your transaction closes but almost all loans are due on the first so when you close you are essentially prepaying the interest that has accrued between your closing date and the end of the month
• if you close on the 28th of September, you will only prepay three days of interest to cover the last three days of the month
• example: if you close on the 28th of September you will prepay three days of interest which covers the September interest – then your first payment will be November 1st in which you will actually be paying for Octobers interest
Cons for closing at the end of the month
2. Closing at the end of the month is only a short term benefit.
• if you close towards the beginning of the month you will have to pay more money up front. If you close at the end of the month, your first mortgage payment will be due sooner than if you had closed toward the beginning of the month
• example: if you close on the 28th of September, your first payment would be due November 1st. This is not a very long period of time between your closing and your first mortgage payment; however, if you close on the 3rd of September, your first payment would not become due for almost two months later. Your mortgage will still be due on November 1st but you have a longer period of time between your closing and your first mortgage payment
So how do you decide whether to close towards the beginning of the month or at the end of the month? Well, it depends on how much up front money you have. It will take less initial cash if you close at the end of the month which is a huge benefit for most people.
Talk to your realtor about your situation and ask them for their advice about what type of closing would be best for you. Your realtor deals with all kinds of closings every month and will be able to help you with a recommendation.