If you are the buyer, you might prefer to close toward the end of the month and avoid pre-paid interest on your new mortgage. (Interest on a mortgage is always paid in arrears). Sellers often prefer to close on the first of the month and receive their sales proceeds early on in order to accommodate their purchase of a replacement house or moving plans.
When the purchase contract is signed, both parties will agree to a closing date that seems reasonable. The date should allow the buyer time to apply and obtain a mortgage, review the inspection and title reports, and make arrangements to come up with any additional funds necessary at closing. The seller may need to allow time to settle any outstanding liens on the property or deal with estate or probate issues.
Both parties should consider if there is a possibility they might be out of town — or the country — when the closing date is selected. You will want to be sure you do not choose a day that falls on a weekend or holiday.
Advantages to closing in the first two weeks of the month
• The first few weeks of the month tend to be less busy than the end of the month for both your lender and closing agent. Transactions that encounter problems tend to get pushed to the end of the month and cause a backlog of closings for the agent — leaving you less likely to pick your ideal day or time of day for closing.
• Closing early in the month allows time to take care of any unforeseen problems that might delay the closing — such as inspection approvals, securing replacement housing for the seller, and down payment funds for the buyer.
Advantages to closing toward the end of the month
• Buyers have less out-of-pocket (upfront) expenses because they will have to come up with a bit less interest on their mortgage and pro-rata expenses. This can be a benefit in the short term by avoiding a large outlay of money at a time when a buyer may need cash for other expenses — such as moving or remodeling work on their new house.
• Interest on a mortgage accrues from the date borrowers close through the end of that month. For example, if borrowers close on June 29, they will owe interest for June 29 and 30. If the borrowers close earlier in the month, for example June 14, they will owe interest from the 14th up to the last day of the month. (For some unknown reason, the 15th of the month tends to be the busiest day of the month for lenders and the day that causes the longest delay in getting closing documents prepared).
• When the closing occurs near the end of the month, the first mortgage payment will be due one full month after the last day of the month the mortgage closed. For example, if a borrower closes June 14 or June 29, the first mortgage payment will not be due until Aug. 1.
Tax advantages to consider when choosing a closing date
In some cases, you may want to consider postponing your closing until the following tax year. You may want to review your tax liabilities for the current tax year and ask your financial adviser or accountant whether taking additional deductions in the current or future year would be most beneficial to you.
You may not be able to postpone your closing, but it might be worthwhile asking to see if the benefit would be substantial. Your accountant can calculate the items at closing that will be tax-deductible and those that will be added to the value of the property. The normal allowable home purchase deductions will be the points, interest and property taxes.
Why Friday is not the best day to close
Fridays are often the busiest day of the week for the closing agent. Try to schedule your closing for a Monday, Tuesday or Wednesday to allow for last-minute complications and allow yourself time to clear up the problem (such as the need to provide additional required documentation or come up with funds you did not anticipate).
Sandy Gadow, a freelance writer and author of “The Complete Guide to Your Real Estate Closing,” is a former title officer and licensed real estate agent with more than 20 years of experience. Gadow will answer readers’ questions in future columns. Contact her at firstname.lastname@example.org.