Why are Settlements Scheduled at the end of the Month?

Loan documentsIt never seems to fail. The end of the month is packed with closings. The loan officers are scrambling, the settlement companies are swamped and the Realtors® are shuffling contracts to make sure everything is done.

But is closing at the end of the month all that important?

The answer may depend more on your cash in hand than any other reason. For many first time homebuyers an end of the month closing means less money needed at the settlement table. First, you probably made your last rent payment at the beginning of the month and if you settle and move at the end of the month you don’t have to worry about another rent payment. Secondly, interest on your mortgage begins on the day the transaction closes. So if you settle on March 30th then you only have to pre-pay interest for that month or in this case one day. Your first payment will be due on May 1st, when you will be paying April’s interest. Interest is always paid in arrears so in some ways April becomes a “free” month.

There is no harm in closing in the middle of the month and some settlement companies in Northern Virginia offer specials to encourage buyers to choose a settlement date other than the last few days of the month. If you decide to close in the middle of the month you just need to have extra funds at closing to cover the pre-paid interest that will be due on your loan. The good news is if you are buying a home at the end of the year and close in the middle of November you won’t have a payment due until the 1st of January.

I generally encourage my first time homebuyers to look at the end of the month to close so they have a little extra money on hand for the incidentals. For my move up buyers with cash from a previous sale I suggest they take advantage of the less frenetic middle of the month closing. It is interesting to point out to buyers that no matter when you close you don’t actually save any money in the long run. Your final mortgage payment is still a long way out and it will due 15, 30 or 40 years to the day of your original close.

So it is the end of the month and I’m off to the settlement office!

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