After all the homes you’ve looked at or all the buyers that have tramped through your home, all the haggling over price and waiting for the results of the home inspection and appraisal, closing escrow is a dream-come-true. Although the closing is the end of the line, determining when to close, which is negotiable between buyer and seller, is an important step. For some “best time to close” scenarios there is a counter, so choose the option that is best for you.
Close escrow as late in the month as possible if you are purchasing a home. This decreases the amount of prepaid interest you’ll need to pay, which is prorated from the date of closing to the end of the month. For instance, on a $200,000 mortgage at 7 percent interest, the daily interest paid is $38.36, according to LendingTree.com. If you closed on the 15th of the month, you would be charged $575.40 in prepaid interest. If you close on the 29th, on the other hand, you will only pay two days of interest, or $76.72.
Choose a closing date early in the month, as a homebuyer, if you are cash-flow conscious. Although you will pay more in prepaid interest, you will be skipping two payments instead of one. This is because mortgage interest is paid in arrears. For instance, if you close on November 6, you will pay interest until November 30, at closing, and you won’t need to come up with your first mortgage payment until January 1. Although you are actually not paying less money in the long run, you aren’t paying cash out of your pocket for living in the home during November and December, in the short term.
Avoid a Christmas Eve or New Year’s Eve closing. In fact, if you’re set to close escrow near these holidays, choose a date one week before Christmas or one week after New Year’s. Title representatives, mortgage lenders and real estate agents tend to take a lot of time off work during the holidays, especially the week leading up to both of them.
Close escrow in the middle of the week. This allows everyone a more relaxed pace to complete the final paperwork than they will have on a Friday. On Monday people are typically trying to catch up with Friday’s work, so Tuesday, Wednesday or Thursday are the best days.
Choose a Friday closing if it’s a slow market or you live in a rural area where the players involved in closing aren’t overly busy. This way you will have the keys in hand to do painting or move over the weekend.
Request a simultaneous closing date if you are the seller and you have purchased another home. In this situation, both of your escrows close on the same day. This can be tricky, and it does have its drawbacks, but lenders deal with these types of closings daily.
Real estate expert and journalist Broderick Perkins points out that “The longer a transaction is in escrow, the greater chance for problems,” so it is often best to close when the loan is funded and all parties are ready.
If you are paying off a Federal Housing Administration loan in a refinance, be aware that FHA does not prorate the interest. In this case, it is best to close at the end of the month.
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