Earlier closings may be in home buyer's best interest
HOUSING SCENE
Most people schedule real estate settlements late in the month to save on paying upfront cash, but the last-minute rush often causes mistakes and creates logjams.
To milk all they can out of their final rent checks, first-time buyers often try to schedule their closings as close to the end of the month as possible.
But there's another reason practically all buyers, not just rookies, prefer to settle up late in the month -- interest. The later you close, the less interest that's owed to the lender. And that means less cash you'll need to bring to the table.
That's why perhaps 95% of all real estate closings take place during the last week in the month, many on the last day. After all, cash is a big consideration for most people.
But if a few hundred dollars extra won't put a dent in your budget, there are several good reasons to consider closing earlier. One is that fewer mistakes are made when closing agents aren't rushed because they are trying to accommodate everyone they can. Another is that you'll get better service. And it's not just escrow companies that are under the gun at the end of the month. It's everyone down the line -- appraisers, surveyors, insurance agents, even lenders.
Of course, in today's market no one is particularly overrun with business, even as a month draws to an end. But staffs aren't what they were during the boom times, either. So there are fewer professionals left to handle what little activity there is. Thus, the result is often the same -- logjams.
Still, if cash is in short supply, closing as late in the month as you can makes economic sense. Just be ready for the rush to get you in and out the door.
At the same time, though, realize that the later you close, the sooner your first full mortgage payment will be due. Here's how it works: Say you close on Jan. 28. You'll have to pay three days of interest -- Jan. 29, 30 and 31 -- that ordinarily would be due with your February payment. It's called "odd days interest" or "prepaid interest." If you choose to close on Jan. 15, however, you'll owe 16 days of prepaid interest -- from Jan. 16 through Jan. 31. And if interest charges are running, say $25 a day for simplicity purposes, the difference between three days of interest and 16 is $325.
