Does the Day of the Month Matter for Closing? Not Much Typically w/ Decent Savings, Maybe if Living Paycheck to Paycheck or Getting Assistance
- Adam Garrett
- Sep 28, 2023
- 1 min read
Updated: May 2, 2024
It's not uncommon for buyers and sellers, especially those with mortgages, to want to avoid closing at the beginning of the month, but does it really matter? For those with a mortgage, it impacts the timing of your first mortgage payment. Put simply, it matters for up to 2 months if your budget is tight & purchasing with a mortgage, but not nearly as much if you have a healthy savings account excepting certain down payment/closing cost assistance scenarios.
If Buying with a Mortgage
You traditionally pay less up front if closing at the end of the month, but your 1st mortgage payment hits sooner if doing so since the 1st payment is not based on days after closing but by the time of the month (typically the 1st day of the 2nd calendar month after closing, i.e. November 1st if you closed today, September 28) regardless of when during the month you close. If you were to close on October 1st, your first monthly payment wouldn't hit until December 1st.
I have seen at least one case where a buyer reduced the money they needed to bring to closing by pushing their 1st monthly mortgage payment up by a month.
When you factor in the costs that you initially will incur around the time of your purchase, as long as you have healthy savings that won't dip too far due to your purchase, it's not really a problem. If there are factors involved that may or may not cause that to happen, such as low savings or purchasing a home with no home inspection, you are more likely to encounter budgeting problems.
If Buying with Downpayment/Closing Cost Assistance
If your closing cost/down payment assistance is more than you need no matter what time of the month you close, even if you don't live paycheck to paycheck, you may want to take advantage of higher closing cost assistance and less down payment assistance by purchasing earlier on in the month. In this case, the financial impact goes beyond an up to 3-month time frame.
If Selling with a Mortgage
If you sell at the beginning of the month while you have a mortgage, you might have just paid your lending institution a mortgage payment, but your closing costs at time of closing will be lower than they would have been otherwise. As long as you don't have an interest only loan, the amount that you owe at time of closing will be lower as well. Your payoff will be higher if the bank is paying you at the time of the sale, and what you owe the bank at closing will be lower if you are paying the bank at the time of the sale.
Buying & Selling Whether You Have a Mortgage or Not
Whether you have a mortgage or not, the timing of the month (& even the time of the year) of when you buy or sell impacts other expenses that can be positively or negatively pro-rated at closing, with some of those having potentially greater than a 2-month impact, such as real estate tax payments. It depends on whether expenses are paid in advance or paid in arrears whether the impact is relatively positive or negative on the purchaser or seller in the short term, but as long as you have healthy savings and will still after closing, it shouldn't matter much, and should essentially cancel out any impact within a few months, 6 months, or a year.
The contract that you use & the terms of that agreement can also have an impact on these factors.
The REIN Standard Purchase Agreement (used primarily in Hampton Roads), for instance, states by default in section 10 (Prorations/Escrow) when not assuming a mortgage, "If new financing, or cash sale, all real property taxes, insurance, rents, interest, and appropriate homeowner's association and/or condominium fees or dues and other reserves and assessments shall be prorated as of settlement date." In section 15, Items to Convey, there's an option to check for fuel in tanks (Oil, Propane) to convey. If that option is checked, and closing is dragged out, you could end up with less fuel or more fuel in some cases.
The VR Residential Contract of Purchase (used primarily in VA outside of Hampton Roads, w/ some exceptions within Hampton Roads) states in section 9 Expenses; Prorations; Rollback Taxes:
"(a) ...All taxes, assessments, interest, rent escrow deposits, and other ownership fees, if any, shall be prorated as of the date of settlement. In addition to the Purchase Price, Purchaser agrees to pay Seller for all fuel, oil and/or propane remaining in the tank(s) (if applicable) at the prevailing market price as of the date of settlement."
What to Do if You Want to Compare the Details of Closing Timing
Reach out to your lender (if using a mortgage) & closer if you want to compare the costs at closing of various scenarios, including but not limited to changing the closing date. Calculators won't be fully accurate and real estate agents won't have enough information to be as precise as your closer (and if applicable, your mortgage lender). That said, if you have healthy savings, you may want to spare them the trouble.
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