End of Month - Closing Date

It almost seems like human nature that we like to tie up all loose ends at the end of the month. Each new month can be a new beginning the slate is wiped clean. The same is true for real estate.

If you are debate the merits of having your closing date at the end of the month, there are some things you should consider.

Renting vs. Buying: An Example

First of all, let's look at the difference between renting and buying a home. When you are renting, it is no secret that you pay your rent at the beginning of the month. IN other words, you are paying in advance for the time you will spend on the property.

Paying your mortgage works a little differently. Because your mortgage payment is often dependant on interest, you pay your mortgage at the end of the month. In other words, you pay, with interest, for the time you just spent in your home. Sometimes this is referred to as paying in arrears.

A landlord may be worried about you living in your place then skipping down before, the rent is due, while a bank is going to want to accrue as much interest as possible over the course of the month.

Dealing with the Down Payment

This distinct situation makes choosing your closing date an important decision. For most homeowners, especially first time homeowners, getting your down payment is the hardest aspect of buying a home. It is often between 5-15% of the purchase price of the home. This can mean thousands of dollars.

The shock of the initial down payment often leaves home buyers a little cash strapped for some time. Therefore, any savings you can hang on to in those first critical months are essential. So, making your first mortgage payment should be as simple as possible.

A Helpful Scenario

Here's a scenario detailing how and why making your closing date at the end of the month can save you some money, in the short term. When you do pick a closing date, interest for your mortgage begins immediately and you will your mortgage payment for whatever the balance of that month is.

For instance, you close your home on June 15th. This means that your first mortgage payment will be due in August 1st. This August first payment is for the month of July. As for the remaining 15 days of June, you pay that on the day of the closing. This is referred to as pre-paid mortgage.

So, the later your closing date, the less pre-paid mortgage you will have to pay. It's that simple. If you were to close your purchase at the beginning of the month, you would have to pay pretty much a whole months payment, in cash, right away. Add that to your down payment and you've got a large amount of cash to shell out.

For the First Time Homebuyer

It also helps if you are going from a rental situation to a buying situation. If you close at the end of the month, you will have gotten full use of your last month's rental payment. If you close at the beginning you will be paying an extra months rent for time that you wouldn't be using the place.

Don't be fooled though, you are not actually having any money in the long term. You still have to pay every cent of your mortgage; you just pay less in the first month. This technique will catch up with you in 30 years when your mortgage is finished. But really, you need that cash now, so who cares.

Cons of End of Month Closing

Because real estate folks know that just about everyone and their grandmother wants an end of the month closing date, they will sometimes offer incentives to those who are brave enough (or who can afford it) to have a closing date at the beginning of the month.

Interest Credit

This is often called an interest credit. An interest credit often applies to the first five days of the mortgage. If you can do this, it may save you a little bit of money. And, when you think about it, this is real savings, not just putting off something to a later date.

However, the amount you save on those five days may not equal the amount of interest you may accrue on a high interest loan to pay for your down payment. Just do the math and you'll see the difference.

Ancillary Closing Costs

Another reason you may want to consider having a beginning of the month closing date, is it is often hassle free. Firstly, your real estate broker will have a lot more time for you, as their calendars are often bottom loaded at the end of the month. They will be able to explain things more thoroughly and they may end up cluing in on something that they may have forgotten if they were really busy.

Also, don't forget that any lender fees that you may owe will most likely come due right after your closing date. This is something else you should consider when you are trying to decide between an early or late closing date.

Amy lenders know that you are in a bind, and they may give your some leniency, but don't count on this. They are in business to make money, and the money they make, is yours.

Also, your closing costs such as moving and any equipment rental can be cheaper, and far more easily secured at the beginning of the month. Because people know the advantages of the end of month closing, movers and inspectors will be busy during these times. Therefore, a beginning of the month closing can be far less stressful.

Obviously though, the beginning of the month closing is pretty much only for second or third time homeowners. Those people with the cash on hand to weather the storm of down payments, moving costs, and they don't have rental situations that they are leaving.