This is the single most common surprise at my closings, and it is a good one. You sign on a Friday, you move in that weekend, and you do not owe a mortgage payment for close to two months. Almost nobody knows this going in.
Your first payment is due on the first day of the second month after you close.
Close any day in June, your first payment is due August 1. Close any day in September, your first payment is due November 1. It does not matter whether you closed on the 2nd or the 29th — the month you close in is skipped either way.
Rent is paid in advance. You pay on the first for the month you are about to live there. Mortgage interest works the opposite way — it is paid in arrears, meaning each payment covers the interest that already accrued during the month before it.
So an August 1 payment is settling up for July. You closed in June, so there is no full month of ownership to bill you for until July finishes. That is the whole trick. It is not a gift and it is not a grace period, it is just which direction the calendar points.
Here is the part people miss. The days between your closing date and the end of that month get charged as prepaid interest on your closing statement.
Close June 12 and you will pay interest for June 12 through June 30 in cash at closing. Close June 27 and you pay for four days. This is why loan officers sometimes suggest closing near the end of the month if you are tight on cash to close — fewer days of prepaid interest.
Do not chase that too hard. Moving your closing to the 29th to save a few hundred dollars of prepaid interest is rarely worth the risk of a lender delay pushing you into the next month with a moving truck already booked. And the money is not saved, only shifted — you will still owe that interest, just inside a later payment.
Alongside prepaid interest you will typically fund your escrow account: several months of property taxes and usually a full year of homeowners insurance paid up front. In Texas this is often the largest line item after the down payment, because our property taxes are what they are. Ask your lender for the specific number early — not the week of closing.
Nothing. Sit on it.
Everyone who has just closed feels rich for about three weeks, and that is exactly when the water heater goes out or the fence blows down. You now have one month of housing money that is not committed to anything. Leave it in the bank as your first repair fund. If nothing breaks, put it toward the January property tax bill, which is the second surprise nobody warns you about.
Confirm the actual due date and the servicer on your Closing Disclosure, and confirm where the payment goes. Loans are frequently sold to a different servicer within the first sixty days — that is normal and it does not change your terms, but you will get a letter about it and it looks alarming if you are not expecting it. If a payment is due before that transfer sorts itself out, pay whoever the letter tells you to and keep the confirmation.
Thinking about your first home? I will walk you through the real numbers before you talk to anybody about a house, so you know what you are working with.
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REALTOR® · BHHS PenFed Realty Texas
I help buyers and sellers in Fort Worth, Burleson, Crowley and Keller. I write these because they are the questions I answer on the phone every week, and most people never get a straight answer to them. If you have one I have not covered, ask me — I will probably turn it into the next post.