When is the best part of the month to close on a house?

Many new homeowners work years toward their goal of buying a home. After all that time and effort, does it matter exactly when you close? It turns out that closing on a house near the end of the month instead of the start can save you several hundred or even several thousand dollars.

Key takeaways:

• Closing near the end of the month can save you hundreds or thousands of dollars in interest.
• Closing on the 1st, the 15th, a Friday, a federal holiday, or the last day of the month increases the likelihood of delays.
• Seller concessions, buying and selling a house at the same time, and personal life factors may matter more than how much you save on interest.

Why the day you close matters

The day you close affects when your first mortgage payment is due, your amortization schedule, and how much you must pay in interest and property taxes, all of which affect when the best time to close on your house is.

Your first mortgage payment

Your first mortgage payment usually is due on the first of the month, 30 days after you close. This means that if you close on Feb. 4, your first payment will be due April 1, not March 1, because that’s less than 30 days after you close.

Because not all months are the same length, the month also matters. If you close on the first day of a 31-day month, such as May, your first payment will be due June 1.

The amortization schedule

Your mortgage is amortized, meaning your monthly payment is calculated to repay the principal and all accrued interest by the end of the loan term. When you start paying your mortgage, most of your payment goes toward interest, and a small amount is applied toward the principal. With each payment, you pay less interest and more principal. At the end of the loan, almost the entire payment goes toward principal.

When you close on a house, you must pay the interest that will accrue on your loan before the first payment is due. This interest is rolled into your closing costs. Closing early in the month means you’ll pay more interest with your closing costs than if you close later in the month.

Tax liability

Mortgage interest is tax-deductible, so how much interest you pay affects your taxes. The deduction usually is large enough that most homeowners benefit from itemizing their deductions instead of taking the standard deduction.

When you close affects how much interest you pay, which can affect how much you can deduct from taxes in the year you close and the following year.

Closing in late October with a first mortgage payment on December 1 means you may not pay enough mortgage interest to justify itemizing your deductions on your taxes.

Holding off for an early November closing puts your first payment on January 1 and allows you to maximize your interest deductions next year.

If you expect to buy a house near the end of the year, pencil out which tax deductions you expect to claim this year. If you’re not planning to itemize deductions and will stick with the standard deduction, pushing the closing back a few weeks may be worthwhile.

Challenging days to close on a house

Some days are particularly difficult to close on. We’ll break down which days to avoid and why.

The 1st, 15th, or last day of the month

When you close on the first of a month, you’re going to accrue interest throughout the whole month, resulting in a big payment or high closing costs to cover prepaid interest.

Meanwhile, the end of the month can be a hectic time for lenders. That’s when they often deal with the complex cases from earlier in the month. You might save on interest if you aim to close on the 30th or 31st, but circumstances beyond your control might have you closing on the 1st instead.

If you’re feeling overwhelmed, you might be thinking about the 15th. But you’re not the only one. The 15th of any given month is reportedly the busiest day for many lenders, meaning that unless you’re at the top of their list, you may have to wait.

On or near a federal holiday

There’s no law stopping anyone from closing near or even on a federal holiday, but you’ll have to expect to wait if your closing falls near or on one. Your mortgage lender’s office may be closed, which could delay fund distribution. As you must record your mortgage with your local government, you can expect delays in this process as well.

Because a federal holiday in a month means 1 fewer business days, there might be more closings happening immediately before or after the holiday than there would on an average day. This means you might have to wait an extra day on top of the holiday.

On a Friday

Closing on a Friday poses similar issues to closing on or near a federal holiday. Offices are unlikely to be open over the weekend, so much of the process might get pushed to Monday if anything is delayed by even an hour.

An example of the best time to close

These scenarios illustrate how big a difference closing at the right time can make.

Let’s say you’re closing on a house over the summer. You take out a $500,000 mortgage at a 4% interest rate. The per diem interest you’ll pay until you make your first mortgage payment is calculated this way:

$500,000 (cost of mortgage) x 0.04 (interest rate) / 365 (number of days in a year) = $54.79.

To find out how much interest is accrued by closing at different times of the month, multiply this daily interest amount by the number of days until your first payment.

For comparison, imagine you close on July 1. You’ll pay $1,698, or 31 days, in interest at closing before making your first payment. However, if you close on July 30, you’ll pay interest only through the end of the month, which is two days' interest, or $109.58.

Keep in mind that this affects only the initial interest you pay when closing on the house. Future payments will not be notably affected by the date that you close.

Other considerations

While interest accrual is important, it’s not the only thing to consider when choosing a time to close on a house.

Seller concessions

If you’re closing on a house in a buyer’s market, a common seller’s concession is offering to pay some or all of the buyer’s closing costs. As the interest accrued during the month of closing is included in those costs, you might not have to worry about the date at all. Just make sure you are clear on what the seller is offering to cover before making a commitment.

Your housing situation

If you’re buying and selling a house at the same time, putting off the closing date might leave you needing accommodations if your home sells before then. Unless you have someone to stay with for free, the nightly price of a hotel might be higher than the interest you’d owe if you just closed earlier. Do the math to determine if this is worth it.

Your personal life

Life sometimes keeps us from meeting an exact timeline. You might want to close on a house quickly due to a new job, the start of the school year, or a baby on the way. You might travel for work or be moving across the country, so you can’t be there to close the house when it saves you the most money, though you can ask your lender if a remote closing is an option.

The bottom line: When closing on a house, choose what works for you

The date of your closing can affect many things, from the size of your closing costs to whether it makes sense to itemize on your taxes. In general, it’s best to close earlier in the month, and you should avoid closing on the 1^st, 15^th, Friday, or near a federal holiday to avoid delays.

If you’re ready to buy a home, you can start a mortgage application with Rocket Mortgage today.