When is the best time to close on a house?
Quick insights
- When buying a house, your closing date can affect your interest and the timing of your first mortgage payment.
- Certain days like federal holidays and Fridays may increase the risks of delays and errors.
- Consider personal factors like rent, utilities and seller needs when choosing your closing date.
The right time to close on a house for you may be early in the month but also depends on your personal circumstances, such as existing rent and utilities. When scheduling your settlement, avoiding Fridays and federal holidays can also be helpful because they can risk delays from bank closures or last-minute issues.
There’s no one best approach, so let’s review the impacts of your closing date and how you can pick the right time to close on your home purchase.
The impacts of your closing date on homeownership
Your closing date affects more than just when you get the keys to your new home. There are several important financial impacts of when the purchase is settled.
Mortgage interest payment at closing
When you close later in the month, you may owe less interest on your mortgage because mortgages are paid in arrears—meaning what you pay at the end of the month is for the previous month.
When a new mortgage loan originates, buyers have to pay all the interest due from their closing date to the end of the month as part of closing costs. For example, if you close on January 28, you may pay three days of interest for January. 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' worth 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. This upfront expense is important, and potentially saving on it might help you to budget.
First mortgage payment
Your first mortgage payment is typically due on the first day of the second month after your closing. If you close toward the beginning of the month, you won’t have a mortgage payment for almost two months; however, more money will be due at closing to cover the interest. If you close at the end of the month, you’ll probably make your first payment in a little more than one month.
Arranging your closing to delay your mortgage payments could potentially free up money to put toward moving expenses and closing costs. Depending on your plans, this can be appealing.
Delays and dealbreakers
Most closing dates are about 30 to 60 days after you’ve made an offer on the home. During this time, you can get full approval for your mortgage loan, and the homeowners may fix any issues uncovered during the home inspection.
If you schedule your closing date too early, your financing may not be approved, and you won't have the funds to close. Most lenders will push back the closing in these circumstances, but that can lead to more problems. The seller may even decide to pull out of the deal. It’s generally recommended to leave enough time to reasonably accomplish everything, plus a few days to address any problems.
Scheduling your closing date too late 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 may 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 certain factors in mind when timing your closing date. Here are several tips:
- 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 may be 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.
- Avoid the 1st or 15th of the month. These dates can be common for financial transactions, such as rent payments and utility bills. A high volume of financial transactions, such as wire transfers, might create an increased workload across banks and risk delays or errors.
- Don’t pick a federal holiday. Financial institutions and mortgage lenders are normally closed on federal holidays. Plus, other offices, like your titling agency, may be closed. As a result, you likely won’t be able to sign your closing documents or finalize the real estate transaction.
- Try to avoid Fridays. On closing day, there’s a lot to do—the final walkthrough, funding and paperwork, to name a few. Most banks, title companies and government offices are closed over the weekend. If a problem comes up last-minute, solving it before the weekend becomes a time crunch. Besides this added stress or uncertainty is a real possibility the funding, titling or access to the property could be delayed.
- Think about when your rent is due. If you’re moving out of an apartment, you probably don’t want to pay more rent than necessary. However, paying for those extra few weeks or months could be good if something happens late in the home purchase. For example, your closing date could be delayed, or you want to have work done at the new house before you move in. Timing when a lease ends with your closing date has pros and cons, depending on your situation.
- Consider when utilities can be connected. Talk to your utility companies about setup before you close, so you know how long it takes to schedule and complete. You probably 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 align on a 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 can be a good idea to close on your refinance as early as you can in the month to save money.
In summary
Your closing date affects your closing costs and when your first monthly payment is due. If possible, consider days other than Fridays and federal holidays because last-minute issues are more likely to delay the settlement. Your personal circumstances matter, too, such as whether you’re currently renting and want to avoid paying more than necessary. In most cases, the seller’s needs are as important as yours; ideally, you both can agree on the right time to settle and move into your new home.
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.
