THE BEST TIME TO CLOSE

When is the best time to schedule a real estate closing? The settlement of a home sale often is scheduled at the end of the month.

Why? Quite simply, many buyers insist on this target because they feel they are saving money by cutting back the number of ownership days for which they must make interest payments on their mortgage financing. Unfortunately, this may not be entirely true. Whether a closing occurs at the first, middle or end of the month has no bearing on the amount of interest owed. Generally, a lender collects interest, starting with closing, for as long as the buyer has a mortgage on the home.

As the month's end draws near, the workload builds for real estate professionals, mortgage lenders and title specialists as all parties are under pressure by home buyers trying to close on time. The fact of the matter is that the money saved by closing at the end of the month are funds included in the prepaids, or part of the expenses paid up front by the buyer at closing. These prepaids include interest that accrues on the mortgage from the closing day to the first day of the next month.

Mortgage interest is always collected in arrears to cover the previous month's ownership. The first monthly mortgage payment made after closing applies to the first full month of ownership that comes between the settlement date and the date the first payment is due. Let me clarify this with an example.

If a closing occurs on January 31, the borrower pays prepaid interest for one day's ownership in that month. If loan payments are collected once a month, the first mortgage payment likely will be due March 1. However, if the borrower's closing is on February 1, they will pay prepaid interest for 28 days of ownership for that month. But, his first mortgage payment is not then due until April 1. During virtually the same amount of time (from Jan. 31 - April 1, or from Feb. 1 - April 1), the borrower pays close to the same amount of money.

Home buyers who find themselves short on cash needed to cover all closing costs might prefer an end of the month settlement because they lack the money needed to make a prepaid interest payment for all or most of one month's occupancy. In such cases, it might be more convenient financially for a buyer to pay a small amount of prepaid interest by closing at the end of the month, and then start making mortgage payments sooner.

Buyers who may actually save money by closing at the end of the month are renters, not current homeowners. This is because renters who miss closing at the end of the month could be forced to pay another month's rent as well as the prepaid interest for one month's worth of ownership. On the other hand, people who are moving from a home they own into another they have purchased do not save money on interest costs with an end of the month closing.

Here is a tip however: It is better to plan your closing several days or up to a week before the end of the month for three good reasons.

1. To avoid the end of the month workload crunch.

2. To escape last minute errors that could delay closing or cause you not to close.

3. To assure better, more relaxed service from all parties involved.

No matter when your closing is scheduled, you can count on your REALTOR to do what's best for you. Call your REALTOR today and add some true value to your real estate transaction.