Question:
Dear Kari;
My boyfriend and I found a house that we like. We have an appointment with the real estate agent to write the purchase agreement to give to the seller. Our question is does it matter what closing date we put in the contract? Are there any advantages of using any specific date that could help us manage our resources better?
Answer:
The short answer is yes! Setting a well selected closing date will help reduce your overall closing costs. In the event you are obtaining a home mortgage, as opposed to a full cash sale, the mortgage lender typically needs 30 plus days to finalize the transaction. This is because there are many laws and rules that all lenders must adhere to.
It would be wise to avoid closing on Friday or right before any holiday. Although closing on a Friday or just before a three-day holiday weekend would seem like a good idea for extra time to pack, clean and move, seasoned real estate agents and lenders both agree, it is not wise to push it that close, just in case there is a hiccup. Your lender may have last minute requests for additional documentation. As an example, if you end up closing the day just before a holiday or a Friday and something does go wrong, if the holiday is on a Monday you will not be able to close until Tuesday. This can add several additional fees and end up frustrating everyone in the process. In the event the lender is not allowed enough time to finalize all the necessary requirements, the closing date could come before the loan is even ready. In this case, the seller may be able to cancel the deal and perhaps accept that backup offer for more money.
You should also keep in mind your financial priorities with regards to your short-term cash flow and the actual closing costs. If you select to schedule the closing date late in the month, you will pay less interest at the closing. Yet, if you set the closing for early in the month, you will give yourself more time before the first mortgage bill arrives in your mailbox.
Typically, borrowers prepay interest to cover the period from the closing date to the end of the month and then they skip another month before their mortgage payment is due. This is because the mortgage payment and interest are paid in arrears, as opposed to rent, which is paid in advance.
If you time it right, you can have seven to 14 days of principle interest paid through the escrow. For example, if you close on the Jan. 22, you would not have a payment due until March 1. Some buyers have found this to be most helpful with managing their financial resources and minimize the amount they must bring to the closing table.
Tax impound accounts allow a buyer to divide their taxes equally into every month’s payments. Therefore, they will not get slammed with big payments twice a year. These impound accounts may require up to eight or more months of taxes pre-paid at the closing of escrow. However, if you work with your lender and time it correctly you may only find that you will only have to pay from two-to-three months of impound at tax collection time.
As the old adage goes, “Timing is everything in the world of real estate.”
Kari McCoy owns the Kari McCoy Group, Residential Real Estate, at Lyon Real Estate. Contact her at 916-933-5274 or sold@karimccoygroup.com. #00841588