I just read this on a site primarily for Real Estate Agent:
“For the first time home buyer who is low on Cash, I would highly recommend closing at the end of the month.”
WOW… As a licensed mortgage professional, I completely disagree with this statement from Real Estate Agents!” The days of interest scare, and false illusion of some serious savings has caused many problems for many people over the years.
My advice: CLOSE WHEN IT IS CONVENIENT – Not simply at the end of the month.
On any mortgage loan closing, you start paying interest the day you sign. Many people tell you to close the end of the month because you will save a lot of month in closing costs by doing so. This is misguided advice.
You are NOT paying “additional” closing costs – you are simply paying interest starting the day you purchase the home. Close whatever day makes most sense for YOU!
Let us take a $200,000 loan, 30-year fixed, at 4.00%
- If you close March 30th, your first payment is 32 days away (May 1). You pay two days of interest at closing ($44.00)
- If you close April 2nd, your first payment is 58 days away (June 1). Sounds great, but you will pay an additional 28 days of interest at closing ($622.22)
Appears to be some significant savings – but lets do more math. With either closing date, your mortgage (loan only) payment is $954.83. So if we assume the 60-day window of the “closing month” and when the first payment is due using either method, and calculate what each person will have needed to pay out-of-pocket including their June 1st payment, we get:
- Option 1: Pays $44 for two days of interest plus two mortgage payments = $1953.66
- Option 2: Pays $622.22 at closing, plus one mortgage payment = $1577.05
Completely opposite of what the Realtor said, you actually just saved $376.61 by closing on the 2nd day of the new month, versus the last day of the last month.
Another aspect – The last week of every month, is extremely busy for both the Closing Agent and your mortgage lender. There is a larger possibility that an error may be made during this time. You may also find the Closing Agent much more relaxed and personable if she doesn’t have 8 other closings scheduled the same day as yours. Anytime between the 4th and 24th of the month are good days to close.
Moving considerations: Let us say you expect to closing on your new home and move out of your current residence the last day of the month. You give notice to your landlord to end your lease and arrange for movers or to rent a truck. Then, your loan closing gets delayed for 5-days. This happens ALL THE TIME, especially with foreclosures and short-sales. You are now homeless! New tenants could be moving into your apartment, and the movers are going to charge you for wasting their time. You could be forced to live in a motel for a couple of days!
A Better Plan: allow for a 5-7 day overlap between closing and moving. In the long run, it is not nearly as expensive and it will sure give you peace of mind.
Moving trucks/movers: Go price out moving trucks. They are significantly cheaper if renting in the middle of the month versus when everyone else is moving at the end of the month. The “cash strapped” buyer could have easily spent the difference in the cost of a moving truck.
TIPS FOR A SMOOTH HOME LOAN CLOSING – by a guy who has been to thousands.