Posted on: 25 June 2017
The date of closing is likely the second most important day during the process of selling a home. The day the buyer and seller agree to the terms of a contract is the most important, but the closing date is when all parties involved get paid. For the seller of a home with an FHA-guaranteed mortgage, the choice of closing date could result in savings of up to one month in interest charges.
Funding provided by the buyer's new mortgage is typically made available on the settlement date. Along with the various closing costs, any outstanding mortgage balance on your property must be paid with the funds. Until recent years, home sellers with existing FHA loans were often charged additional interest at closing, even though the outstanding balance was reduced to zero.
Lagging interest charges
Post-settlement interest is interest charged for the days between when a loan is paid off and when the next installment would have otherwise been due. Effective in 2015, a ruling by the agency that oversees the FHA clarified the conditions under which post-settlement interest can be charged. For newer FHA loans, the charging of post-settlement interest was disallowed. For older FHA mortgages, however, post-settlement interest charges remain a possibility.
Age of existing FHA mortgage
If you have an existing FHA mortgage that was closed on or after January 21, 2015, you can be charged interest only through the closing date of a home sale. If your existing FHA loan was closed prior to that date, your mortgage company is allowed to charge post-settlement interest after providing you with an approved disclosure statement. If you are selling a home subject to post-settlement interest, you might prefer to strategically schedule the closing date.
Choosing a settlement date
The ideal closing date to avoid post-settlement interest would be your actual installment date. However, a closing delay of just one day could result in additional interest charges for most of another month. By scheduling the closing a few days before the regular installment date, the additional interest charge is kept to a minimum. At the same time, provision is made in case the closing date is delayed a day or two.
As the outstanding balance of a mortgage decreases over the the life of the loan, the amount of monthly interest also drops. Avoiding or minimizing post-settlement interest is just one of many considerations in selecting a closing date. The schedule of funding provided by a buyer may be a more important factor in choosing a settlement date. Contact a real estate agent for more advice on selling your home.Share