For years closing attorneys have marveled at how the real estate industry remains infatuated with closing at the end of the month. Closing at the end of the month rarely makes any sense and often leads to closing delays and frustrated consumers.
Most consumers don’t have a preference as to when they close. But often they end up closing at the end of the month because real estate agents and lenders have been programmed to think that it is best to close at the end of the month to avoid interim interest. This is rarely the best advice for your client for several reasons.
First, a buyer will be charged interim interest on their loan from the day of closing until the end of the month which is why most people think waiting to close at the end of the month saves them money. But, you only pay interim interest for the day the loan is in place, in other words, when you are in the house. So, waiting to close to avoid interest just means you are waiting extra time to move in. Most buyers do not want to wait and want to get into the house as soon as possible.
Second, the buyer is not really saving any money because prior to moving into the new house they are most likely still paying for another home. The bottom line is that most people don’t live for free. While it is often true that the closer toward the end of month that the buyer closes the transaction, the less interim interest collected at closing, the buyer will still be paying interim interest on the house they are selling. So, while they may pay less interim interest to buy the new home, they will pay more interim interest on the home they are selling and ultimately it is a wash regardless when they close.
Additionally, if the buyer does not own a house but is rather renting, it still is often bad advice to close at the end of the month. The buyer runs the risk of not being able to vacate the rental unit on time and if there are delays in closing they may have to rent a hotel. The cost of the hotel will greatly exceed to cost of a few days of interim interest. By closing in the middle of the month, any delays will allow the buyer to still close and not exceed the rental term.
Also, it’s important to note that if the buyer is a cash buyer there is even less reason to close at the end of the month. Someone paying cash does not pay interim interest so you are not saving your client any money. A cash buyer should rarely close at the end of the month.
Lastly, lenders, attorneys, title abstractors, inspectors, agents, and appraisers typically are slammed with multiple closings at the end of the month. Due to the volume, delays can occur, and when delays occur, it can be costly to the consumer.
The only time that closing at the end of the month makes sense is if you have a first time home buyer who is very short on cash and can’t afford to bring any money to closing. However, this buyer could close on the first day of the month and they will have no interim interest. Also, some lenders allow negative interim interest if you close within the first 5 days or so of the month which actually reduces the amount the buyer brings to closing. Regardless of which day of the month you close, however, by the time you make your first full mortgage payment at the beginning of the second full month it will all equal out. The day of the month you close does not affect the total amount that you will end up paying on your mortgage no matter how the cash to close number shakes out.
Let’s break this trend that has needlessly gone on for way too long. Start suggesting that the consumer close any time other than the end of the month. The consumer will have less chance of a delay and a happier closing experience. Happy consumers equal more referrals.
Blair Cato Pickren Casterline celebrates the life of REALTOR Sarah Leverette. Ms. Sarah died on Wednesday at the age of 99. She was among the first women to graduate South Carolina Law School. In 1947 she was the first female faculty member of the law school. Later in life she was a dedicated real estate agent who worked at Russell & Jeffcoat and Coldwell Banker Residential Brokerage. She remained active in real estate until her passing. Ms. Sarah had a sharp- mind and quick-wit. Age did not slow her down at all. Everyone who knew Ms. Sarah considered her a little giant!