If you’ve purchased multiple homes or have experience in the real estate industry, you might be familiar with the conventional wisdom that suggests buyers will save money if they settle at the end of the month. However, it’s not that simple – and many buyers may actually benefit more from closing earlier in the month. Here’s how it works:
When you purchase a home at the end of the month, you pay less prepaid interest. While this means less money out of your pocket at the settlement table, it’s important to consider that your first mortgage payment will also be due sooner, which could negate any savings at closing. Your first mortgage payment will be due one full month after the last day in which your mortgage closed; whether you settle on May 1st or May 30th, for example, your first mortgage payment will be due on July 1st.
Buyers who purchase a home in the beginning of the month do pay a little bit more upfront (because they’re paying the prepaid interest at settlement), but they can breathe a sigh of relief knowing that their first mortgage payment isn’t due for almost two months! And of course, they also live in the house longer than someone who settles at the end of the same month, so it makes sense that they pay a little bit more upfront.
Another important consideration is the schedule of your lender, real estate agent, and title insurance company. Because so many buyers scramble to settle at the end of the month, many real estate professionals are extremely busy during the last week of the month. As a result, settlements at the beginning of the month are far less likely to experience delays and other issues.