Buying a house is a big decision, and your closing day may seem like it’s far away. While there are many steps before closing, the date you close can make a difference.
Learn more about what a closing date is, why it matters and how to pick the best time to close.
What is closing?
The closing process happens when you pay the final costs and fees and take full ownership of your new home. Closing is more involved than just handing the seller a check and taking the keys. The process leading up to it can take a few weeks as inspections, final loan approval and walkthroughs take place, but it all ends on the day you officially sign closing papers.
Closing day is the final step in completing your real estate purchase. You set this date when you negotiate with the seller, usually just after they formally accept your offer. Once you complete the necessary paperwork at closing, you take ownership of the property.
What happens on your closing date?
On the day you officially close and depending on your state, you'll meet with an attorney or a representative from the title company, typically at their office. Your real estate agent and your attorney or legal representative may join you for closing. The seller may also be there, or they may pre-sign the necessary documents.
During closing, you’ll:
- Pay the amount due, including remaining down payment and costs, to complete the sale. Your lender or closing representative will give you the amount of money you need to close, and you may be required to bring a certified check or have the funds electronically wired.
- Watch the seller sign transfer documents, or confirm they’ve been pre-signed.
- Sign multiple documents, including a settlement statement, a mortgage note and a deed of trust.
This sounds simple, but there’s a lot of paperwork to go through so closing can take an hour or two.
When do you pay closing costs?
Not all your closing costs will be paid on the day you close. You may have already paid some of them during the homebuying process. Some of these, but not all, may include:
- Appraisal fee - for a professional valuation of the home
- Credit report fee - copies of reports for all borrowers
- Origination fee - goes to your lender for making the loan
- Application fee - for processing the loan application
- Title search - guarantees there are no liens on the property
- Title insurance - covers any problems that may surface about ownership
- Underwriting fee - covers processing and administrative costs
You may also have to pre-pay for part of your taxes and insurance.
Can your closing date impact your closing costs?
Yes, and that's why your closing date is important.
When you close later in the month, you’ll owe less interest on your mortgage since mortgages are paid in arrears – the end of the month for the previous month.
When a new mortgage loan is made buyers have to pay all the interest due from their closing date to the end of the month as part of closing costs. If you close on January 28, you'll only have to pay three days of interest for January, and then February's interest will be included in your mortgage payment starting in March. If you close on January 10, you'll have to pay for 21 days of interest in January.
You're still paying interest for all the days you own the house, but closing later in the month means you won’t have to pay as much interest at closing.
Can your closing date impact your first mortgage payment?
Your first mortgage payment is typically due the first day of the second month that comes after you close. If you close toward the beginning of the month, you won't have a mortgage payment for almost two months, but you will need to bring more money to closing to cover the interest. If you close at the end of the month, you'll make your first payment in a little more than one month.
Arranging your closing to delay your mortgage payments could free up money to put toward moving expenses and closing costs. This can be appealing if you’re rolling most of your closing costs into your loan.
Can you schedule your closing date too early?
Most closing dates are about 30 to 60 days after you've made an offer on the home. This allows time for getting full approval for your mortgage loan, fixing any issues uncovered during the home inspection and making any changes based on your final walk through.
If you don't get these things done before the closing date, your financing may not be approved, and you won't have the funds to close. Most lenders will push back your closing in these circumstances, but that can lead to more problems. The seller may even decide to pull out of the deal. Leave enough time to reasonably accomplish everything, plus a few days to address any problems.
Can you schedule your closing date too late?
You have to be careful when scheduling your closing date, because waiting too long can impact your lender and your mortgage loan. If you’ve locked in an interest rate, it will expire after a certain amount of time. You may find that your financing deal is no longer the same and you'll have to rework the entire loan package. You may even have to make larger monthly mortgage payments.
Other tips for choosing a closing date
You may want to keep other factors in mind when choosing a closing date.
- Pick a date earlier in the month. Most closings are at the end of the month so buyers can minimize the interest they pay in closing costs. If this doesn't matter to you, or if you’ll benefit by delaying mortgage payments, choose an earlier date. There are far fewer transactions which could also mean avoiding mistakes that could come from mortgage and title professionals rushing through a huge stack of closings. You may also avoid the risk of not having your closing completed, or not getting a closing date in your preferred month.
- Think about when your rent is due. If you're moving out of an apartment, you probably don't want to pay for a whole month's rent if you close and move early in the month. On the other hand, paying for an extra few weeks of rent could be good if your closing date is delayed. You may also enjoy the extra time to make repairs and decorate your new house, as long as you can afford to pay living expenses in two places for a short time.
- Consider when utilities can be connected. Talk to your utility companies about hook ups before you close so you know how long it takes to schedule and complete. You don't want to move in and be without water or electricity if you can avoid it.
Of course, you’ll also need to negotiate with the seller to find the perfect date. They may have their own timing requirements, such as needing to close on another property and move before closing on the home you’re buying.
What if you’re refinancing?
If you’re closing on a refinance loan, you won't have as many scheduling concerns as a buyer of a new property. Also, the closing costs will likely be lower since you won't have to pay for an inspection or fees like a title search. But the closing date can still make a difference.
Many people refinance to get a lower interest rate. You'll have to pay interest on your existing loan for the days leading up to your closing, as well as interest for the upcoming days of the month on your new loan. If you close earlier in the month, you’ll pay less interest with your new, reduced rate. It makes more sense to close on your refinance as early as you can in the month to save money.
Scheduling your closing date can make a difference. Speak to a Home Lending Advisor to learn more about closing and to get help with your homebuying journey.