Closing day is, arguably, the most exciting day in a real estate transaction. It’s the day where you get to take possession of your new asset or collect proceeds from the sale of your home. In a standard residential transaction, this may seem like another term or step in the process — one that is 30-45 days away from the contract’s execution date. But did you know that strategically choosing the closing date could provide you with up to an extra 30 days to pay your first mortgage payment? Find out how you should be leveraging your closing date!

You see, your first mortgage payment is due on the first day of the second month following your mortgage closing. Meaning, if you closed on June 15th, your first payment would be due on August 1st. Paying your mortgage differs slightly from making rent payments, which are typically paid for the upcoming month. Mortgages are paid in arrears, which means you’re paying for the previous month.

For this reason, closing early in the month can provide both investors and homeowners more flexibility with their cash flow. As an investor or a homeowner, it could provide you a full 60 days after closing before your first payment is due. This could be extra time you use to take care of make-ready repairs, find and vet the right qualified tenants, or purchase some appliances or furniture. It can also significantly change the numbers on your cash flow for a rental property if you can find and place a tenant within the first 30 days. The prorated rent + the first month’s rent would all be a net income because there is no MPI expense until the following month.

Utilizing this strategy can also help you in a leaseback scenario with multiple offers. Oftentimes sellers expect a free leaseback or look for one when considering offers. Paying a mortgage while someone else occupies your new home could be a tough pill to swallow for a lot of buyers. Aligning the closing date to be on the first of the month with the leaseback termination date to be on the first of the following month could provide you with a win-win scenario that gets you to an accepted offer. That’s because the first payment wouldn’t be due until 60 days after closing.

As you can see in the chart below, the earlier in the month your transaction closes, the more time you have to make your first payment. While sellers will often prefer the fastest close possible when reviewing offers, it may be a term you can negotiate in a give and take scenario. Using this payment schedule, you can leverage your closing date to maximize your cashflow flexibility.

I am happy to help you leverage your closing date to work for your schedule and your budget. As your real estate advisor, I put my knowledge and expertise to work for you, and I offer all kinds of resources, including a deal calculator. If you have any questions, please contact me at tmcneil@kw.com or (970) 627-7392.