3 ways to pick the best closing date
When should your deal be sealed? Consider these important points.
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If you are buying a home, it is important for you to have a say in choosing your closing date. Selecting the right day can help you avoid spending unnecessary cash and reduce the odds that a deal-delaying mistake is made.
"For most buyers, a home is the most important purchase they'll make, and the closing is the beginning of it," says Scott Penner, a real-estate attorney in Milford, Conn.
Mortgage lenders will generally need up to 45 days to approve financing, Penner says. But beyond that, buyers should work with their lenders and agents to find a date that works for all parties. Here are three tips that experts say homebuyers should review before selecting a closing date. (Bing: What are the average closing costs in your state?)
1. Consider month's end if cash is low
If you're buying a home and cash flow is an issue, choosing a closing date near the end of the month will reduce the amount of prepaid interest you have to pay, says Shandra Sullivan, a real-estate agent with Solid Source Realty in Atlanta.
Typically, borrowers prepay interest to cover the period from the closing date until month's end, and then they skip another month before their mortgage payment is due, she says.
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A closing on Jan. 1 requires more prepaid interest than a closing on Jan. 31, so scheduling a later date could help if closing funds are a concern, Sullivan says. However, this is more of a cash-flow strategy rather than a money-saving tactic, she says. "If you're tight on cash and need to minimize the amount you bring to the closing table, there's an argument that can be made to wait to close until later in the month," Penner says.
There is a potential drawback, however. Other buyers will likely schedule their closings at the end of the month for the same cash-flow reasons, causing a rush for lenders, says John Walsh, president of Total Mortgage Services in Milford, Conn.
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If the mortgage broker is backlogged or there's a glitch somewhere along the way, the closing could be delayed into the next month. Walsh suggests a compromise: Schedule your closing sometime during the last two weeks of the month. This would cut down on the amount of prepaid interest and still give you enough wiggle room if your closing date is pushed back.
2. Know when you're ready to move
Schedule the closing date around the time you are ready to take possession of your new home, Sullivan says.
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For some people, taking possession means moving in. For others, it is when they start renovations on the property, Sullivan says. Either way, she says many buyers make the mistake of scheduling the closing at the end of one month to save on prepaid interest, but then don't take possession until the middle of the next month.
"There's no need to pay for a property you're not utilizing," Sullivan says. Instead, ensure the closing date is scheduled for when you are physically ready for your home, she says.
Another tip is to coordinate the move-in date with the move-out date of the property you're leaving. "You won't have to pay for temporary housing before the move," Sullivan says.
3. Beat the holiday rush
Many owners want to schedule a closing right before a holiday so they can use the down time to move, Walsh says. A better choice is to schedule the closing within a few days of the holiday, not the last business day before, he says.
"I wouldn't schedule the Wednesday before Thanksgiving. If [because of a delay] you don't end up closing on that day, you're not going to close until the following week," Walsh says.
The same rule applies for Friday deals. "You get this mad rush to close right before those weekends, and many things are done last-minute," Penner says. More mistakes can occur if people are rushing through their paperwork to beat the Friday deadline, he says.
Instead, Penner suggests setting the closing date for the middle of the week, so that participants aren't as hurried.
When it comes to selecting the best day to close on a home, it's important to prioritize time for funding and make moving arrangements. After that, homebuyers should work with their agents and lenders to find a date that's good for all participants but that allows leeway in case there's a small delay.