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Choosing your closing date depends on a number of factors.
- A home seller may stipulate a closing date in the contract, and you could lose the home by missing it
- Your house closing costs may depend on your closing date, especially if you’re refinancing
- If mortgage rates are rising, closing after the lock expiration could cost you
Understand also that it’s better for you if you can get your closing documents ahead of time and review them before signing. That removes a lot of pressure, but it means you need to do your part to close your loan quickly.
Does your closing date really matter?
If you’re about to sign your name to a home purchase agreement, you should be happy (and relieved) that you’ve “advanced the ball” this far downfield. But before you touch that pen to paper, ask yourself this question: “Am I about to agree to a ‘good’ or a ‘bad’ closing date?”
Yes, it does
The right closing date can help reduce your closing costs, and ensure that the remainder of the home-buying process looks like a well-choreographed ballet of financial, legal and real estate professionals.
The wrong date could produce a slapstick comedy of errors and costly delays. In some cases, it might even cause the whole deal to fall apart.
To ensure that your transaction proceeds smoothly and on time, follow these 5 tips.
1. Keep your lender in mind
Unless you’re paying cash for the home, choose a closing date that’s convenient for you, the seller and your mortgage lender.
Most people schedule the closing date for 30-to-45 days after the offer has been accepted – and they do this for good reason.
Mortgage lending is a document- and labor-intensive process that requires the various players to coordinate many different steps. Under the best of circumstances, it’s a time-consuming effort.
So include plenty of “wiggle room” in case the unexpected happens – a request for additional documentation or the last-minute discovery of a defect in the home.
If you don’t allow enough time, the closing date might arrive before your financing is approved. If that happens, the seller might be able to cancel the deal in favor of a more attractive offer. Although most sellers will agree to a new date, why take the risk?
On the other hand, it’s important that the closing occur before the lender’s loan commitment expires so you can enjoy the promised interest rate. If the date occurs too late, you might have to negotiate a new rate – or even the entire loan package.
2. Determine your financial priorities
What’s more important to you – better short-term cash flow or reduced closing costs?
If you schedule the closing for late in the month, you’ll pay less interest at closing. If you set the closing for early in the month, you’ll give yourself more time before the first mortgage bill arrives.
For example: if you close in September, your first mortgage payment is due December 1, but prorated interest for the month of September is due at the closing.
If you choose September 25 as a closing date, you’ll owe just five days’ interest at the closing, whereas if you close on the 5th, you’ll pay 25 days’ interest at the closing – a sum that could easily total in the hundreds of dollars.
However, if you close on September 5 instead of the 25th, you’ll pay more interest at the closing, but you won’t have to come up with the (much larger) first mortgage payment for eight weeks (rather than 5 weeks).
In the long term, neither strategy actually saves money. However, they do provide you with options – the option of either paying less at the closing or giving yourself more time to collect your first mortgage payment.
3. Avoid closing on Friday or before a holiday
In theory, closing on a Friday or just before a three-day holiday weekend seems like a great idea. More time for packing, moving and home repairs, right?
Resist this temptation!
The last thing you want is for the attorneys, lenders and other professionals working on the transaction to rush through the process. Under such circumstances, costly mistakes are more likely to occur.
For that reason, some experts recommend choosing a date in the middle of the week so the participants won’t feel pressured to dash through all the paperwork.
4. Coordinate the date with your scheduled move
Choose a closing date that coincides with the date when you’ll be ready to actually take possession of the house – whether you’re planning to occupy the home at that time or simply perform a few repairs.
To save money on prepaid interest (see Tip #2 above), some home buyers set a date that’s well in advance of when they intend to move into the house.
While reducing the first interest payment can be a smart move, what’s the point of saving that money if you won’t be using the property for two or three weeks following the close?
Coordinate the utilities
If you’ve ever been without electricity, water and natural gas for more than a day, you know that this is an experience you’d rather not repeat. So be sure the local utilities will be able to supply your house with power just before or after the closing date.
A house without modern conveniences may seem like a minor annoyance – until you actually have to endure it for any length of time.
What are today’s mortgage rates?
Your mortgage rate can also depend on your closing date, because the longer you lock in your rate, the more it costs.
Lock in the correct amount of time at the outset and save yourself some money.