One thing to keep in mind is this: If you close say on the 10th of August (you can do this with any month but this may make the example clearer) , you will either pay interest for the remaining days in that month, and then your first payment will be due October 1st. OR you will have an interest credit when you close (giving you a credit for the first 10 days in August, and then your first payment will be due September 1st). Regardless of which way you set this up - you pay for every day you are in the home. It is just a matter of how much you come out of pocket upfront at the title company.
When you go to sell a home that you have an FHA loan on it, you will pay for interest through the end of the month regardless when you close escrow.
Ron & Brenda Cunningham
West USA Realty
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Bill's answer below is exactly correct. The agents who have answered are answering from the perspective of a purchase transaction. A refinance transaction is different since you are charged a full month's interest after the 1st of the month on the loan that is being paid off. Therefore you want to close at the very end of the month to minimize the number of days you are paying interest on both loans.
Brian Cardenas, Sr. Mortgage Banker
AmeriFirst Financial, Inc.
This will make less upfront money for you to come in with...
However if you have the dollars, close in the first or second week. You will pay interest for those days that are left in the month BUT you will not have a payment until a month after the end of the month you closed in.
Close July 15th your first payment will be Sept 1st... It feels like you are getting a month free however interest is paid at the end of the month you live there. In other words you live there and then pay....
Broker for A-Aa-1 Realty
With an FHA loan, it is best to close as close to the end of the month as possible. Here is why:
To understand the answer, you need to know that we pay our mortgage interest in arrears. In other words, when you make your August payment in a few weeks, you will actually be paying July's interest due. (This is why payoff amounts are always higher than what is shown as the principal balance on your monthly mortgage statement).
Conventional loans do a per day (aka "per diem") calculation to determine how many days interest you owe on your current loan (the one being paid off). For example: close on the 20th of the month and you pay your current lender 20 days of interest.
FHA does not do this. It charges you a FULL months interest, no matter when you close your new loan. So, using that same example above, and you end up paying 30 (or 28, 29 or 31) days interest on your current loan AND you will also pay interest through the end of the month on your new loan. Causing you to pay double interest for about 10 days.
I hope this helps.
Your lender should be able to provide exact numbers for you!
Later in the month is actually better than end, end of the month is slammed for most lenders and title companies.