Is it always better to close end of the Month?

We always hear that buyers should wrap up their home-purchase deal at the end of the month so they can pay less prepaid interest at closing. That’s not a bad strategy, But this is often misunderstood and not always ideal. In fact, buyers don’t save money by closing at the end of the month but skip only one subsequent monthly payment. Meanwhile, buyers who close at the start of the month pay more prepaid interest, but then skip two monthly payments. Either way, there are no interest-free days; so in effect, the difference is more about cash flow than savings.

On the other hand Closing earlier in the month helps to avoid the month-end “traffic jam” that’s typical at most mortgage, title and closing company offices. The mortgage company has to fund the loan and if they have a bunch of files they’re working on, they may not get back to that one file to get it done as quickly as they would if it’s one of only a few they’re working on at that time. That month-end traffic jam also means a greater chance of delays, which can push the closing to the beginning of the next month, while buyers will have to come up with that extra cash for the additional prepaid interest. The crunch is worsened by lender timetables that dictate month-end closings for sales of foreclosures and short sales. A short sale requires the lender’s approval because the sale price is less than the seller’s loan balance.

Buyers who want to buy a short sale home need patience, because it’s impossible to predict the time of the lender’s approval with any accuracy. Short sale approvals are so unpredictable, in fact it is suggested that contracts ask for closing “45 days from short sale approval” or similar terms in special provision and such contracts don’t even specify a closing date.

A delay in approval of the buyer’s financing can hold up closing as well, A holiday, particularly if it lands on an end-of-the-month Friday, adds to the time crunch and can trigger an extra two or three days’ delay. We normally suggest that Buyers and sellers should avoid scheduling out-of-town trips or vacations during a transaction or soon after the target closing date.

As far as Seller’s point of view, Even in a buyer’s market, buyers don’t control everything in the transaction. In fact, sellers might have their own reasons to close at a specific time of the month. Sellers who are buying another home might want to schedule simultaneous closings. Sellers also might want to close before the next property tax installment or homeowners insurance premium is due because if the closing agent can’t verify that payment, then its full amount, plus any late charges, will be held back from their proceeds from the sale.

Closing early in the month can complicate the seller’s final mortgage payment, especially if it’s on autopilot, but can also save interest expense on an existing mortgage, unless, the mortgage is insured by the Federal Housing Administration or as we call it (FHA). In that case, the seller usually must pay an entire last month of interest, regardless of when the sale closes. If the FHA loan amount is relatively small, say, $80,000, the extra interest might not be that significant However, a larger loan amount combined with an early-in-the-month closing could cost the seller several hundred dollars. The only way to avoid that is to close on the last day of the month. As buyer You may Bring that to seller’s consideration when you negotiate the sale price if you know they have FHA loan.

Click Here for Free Home’s Market Value in Your Area and if you are planning to Buy a Home please Call Sean Abri at 281-380-0438 or visit www.iAssistRealty.com . We Serve the needs of home buyers and home sellers in Houston, Texas. we Do appreciate your referrals and we treat them the way that makes you proud.

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