The reason you want to close at the end of the month as oppose to the beginning is the amount of interest you will have to pay for the days remaining in the month. The earlier in the month you close, the more interest you will have top whereas the later in the month you close, the less interest you will have to pay.

For most areas, the same holds for property taxes. You will have to pay taxes for the days from the date of settlement until the next bill is due and still have enough for 2 months reserves.

If you are purchase a home, you will also have to reimburse the sellers for the amount they paid ahead from the date of settlement. These costs can add up quickly.

By the way, these principles apply to every mortgage, not just FHA.

Paul by the way if your seller has a FHA mortgage they pay interest for the entire month not just to day of closing. So if you are closing out a FHA mortgage your client would not "lose" those extra days of interest charges.

Great question. I never understood the concept of timing a mortgage. Thanks all below for your replies. It was enlightening.

Paul

Both Bill and Lew answers are more or less spot on. Also, month ends closing do not apply to FHA loans solely. Its a universal consideration that applies to all types of loans. Fo the reasons again given by Bill and Lew, as a happy medium I personally try to close my loans always between the 15th and 25th of any given month.

Good answer Lew. I gave you a thumb's up. Now let's learn about why you DON'T want to close at month end. Because of the lack of funds of many people, just about everyone and their mother tries to close at month end. So now you have the title company (or Attorney - depending on the state) having to rush around going crazy to close everyone on the last day. The problem is that if there's a glitch somewhere, you have to move to the next day which is a new month. If your renter has to pay another month's rent, they won't be too happy. Intelligent people like you who ask this question in advance are the ones who make our lives easier and less stressful. It's always good to close maybe 4 days from the end of month or within the first 5 days of the following month. In the latter, you can request short pay (interest credit) where the lender will credit the buyer 5 days of interest at closing. First payment will be due the following month (close April 1, receive 1 day interest credit, first payment is May 1). It may be that your state doesn't allow short pay, but it doesn't hurt to ask.

Paul the only benefit to closing at the end of the month is that it requires less out of pocket cash when dealing with your prorated items such as taxes and of course on the amount of mortgage interest that you are paying, i.e. settling on the 2nd day of the month in a 30 day month would mean that you would have 28 days of interest to pay. The later in the month you settle the less out of pocket cash needed for these items.