The best time of month to close on a house, explained

Among all of the difficult choices associated with buying a house, choosing a time of month to close might seem like a low priority. Compared to many home buying decisions, it’s certainly lower stakes. Nevertheless, there’s likely $500 – $2,000 on the line when it comes to your closing date. That’s enough to cover that gorgeous Japanese Maple you want to plant in your new yard, or to help loosen up a budget that’s tightened due to all of those moving expenses.

The bottom line is that, all other factors being equal, most people will want to close at the end of the month in order to avoid paying extra mortgage interest. However, for some there are also a few complicating factors to consider, like an existing lease or homeowners association (HOA) fees on the new home.

In this article, we’ll give you a clear picture of why closing later in the month typically saves so much money – and help you identify the key questions to answer in order to make sure that you’re choosing the ideal closing date for your unique situation.

Why closing early in the month is not ‘skipping’ a payment

Each mortgage payment you make will be due at the beginning of the month. Your first mortgage payment is unusual, however, in that it is due the first day after the first full month following closing. If you close on February 1, you will not have to make your first payment until April 1.

There is a lot of advice out there that makes it sound like closing on a home early in the month can deliver a month of “free” housing. This is not the case. Closing early in the month will result in an additional month in which you do not have to make a mortgage payment. However, you’re paying mortgage interest during this time, and the amount you will owe in total for your mortgage will be the same as if you had closed later in the month. You will pay off your house on the same day as the alternate-universe version of yourself who closed later in the month, but you will have paid hundreds of dollars of additional interest for that first month of occupancy that they did not have to pay.

If you’re having cash flow issues, designating a month where you do not need to make a mortgage payment may be tempting, and it will probably be easier and less stressful to schedule a closing early in the month. However, you should keep in mind that you are paying a considerable amount for these conveniences.

An early- vs. late-month closing example

If you’re buying a $250,000 house at a 4% interest rate, your daily interest rate (assuming no amortization, which won’t have occurred at the start of your loan) can be approximated by first multiplying 250,000 by .04 (4%), then dividing by 365 (the number of days in a year). That calculation would get you $27.39. This number is the amount of interest you’ll be playing daily. You can then multiply this by the number of days prior to the first of the next month to figure out how much interest is being added by closing at this time of the month.

Closing on February 1, you’ll be paying 28 days of interest. If we multiply 27.39 by 28, we get $766. That’s the amount you’ll be paying in interest for that month. What about if you close on February 27 and only pay 2 days of interest? If we multiply $27.39 by 2, we get the dollar amount you’ll be paying: $54.78.

An amortization schedule comparison

Example 4-month amortization schedule for a february 1 closing

Example 4-month amortization schedule for a february 27 closing

As you can see from a comparison of these amortization schedules, the only difference between the two scenarios is that the earlier closing date results in more interest paid in total. No payment has been skipped via the February 1 payment.

Advantages to closing at the beginning of the month

• Longer delay between paying closing costs and first mortgage payment
• Less difficulty scheduling your closing due to choosing a lower demand time
• Less risk of error and stress due to the end-of-month rush

Disadvantages to closing at the beginning of the month

• Hundreds or even thousands of dollars spent on an additional interest payment

Other considerations

As we’ve made clear, most people will probably find it more than worth it to close later in the month. However, it doesn’t hurt to run through a few other considerations that could complicate the issue. Let’s take a look.

HOA fees

Some homeowners associations may charge additional fees if you close later in the month. However, these additional fees are likely going to be less than what you’re spending in interest by closing earlier. If you’re moving into a home that comes with HOA fees, it’s worth running the numbers, but it isn’t likely to tip the balance in favor of closing early in the month.

Seller concessions

In a buyer’s market, buyers can often secure various seller concessions, and one common concession is that the seller will pay the buyer’s closing costs. These closing costs will typically include the additional interest accrued via an early closing. That means that if the seller’s paying, there’s no downside to the buyer in securing an early closing. If you think this is the case for you, you should make sure that the interest will be included in your closing costs.

Current lease

Depending on how long it takes to close on your house, as a renter you have the ability to time your closing to avoid paying extra rent. Just keep in mind that if you want to close early in the month in order to avoid paying more in rent, you should include the extra interest payment that you’ll incur through an early closing when you make your calculations. If you need to be occupying your home by a certain date to save on rent, it’s a much better deal to close at the end of the previous month (for example, January 30) instead of the beginning of the current month (February 1).

What about refinances?

In general, refinances are much more straightforward when it comes to timing. You do not need to worry about paying extra interest or delaying your first mortgage payment. There is, however, the matter of avoiding overlapping interest payments.

How to schedule your refinance to avoid overlapping interest payments

If you’re refinancing through the same mortgage lender, or if the loan is not for your primary residence, you should not need to worry about timing your closing date at all. However, if you are refinancing through a different lender, a rescission period will delay the funding of your new loan for 3 days. This delay in itself will not cost you extra money, but if the 3-day delay pushes the repayment of the old loan too close to the weekend, you could end up with a longer overlap in interest payments. You will ideally want to sign your documents on a Tuesday or Wednesday to avoid this issue. Mondays should be avoided, unless your escrow agent will be able to pay off the loan the same day via wire transfer.

The bottom line: Close later in the month to save

Although there are a few complicating factors to consider, for most home buyers, closing later will save hundreds of dollars. The end of the month is the busiest time for closing for a reason – it may feel like a hassle to close at “rush hour,” but your budget will thank you. You’ll want to make careful note of everything you’ll need to bring to a closing and get all of your paperwork in order to avoid last minute complications, despite the rush. Still have lingering questions about what the closing process would entail with Rocket Mortgage^®? Talk to a Home Loan Expert today.