Skipping 2 house payments

By
Mortgage and Lending

Skipping a house payment is actually used occasionally as a marketing strategy for refinancing.  It is especially nice around the holidays when extra cash is always needed.  It is pretty common knowledge that a payment is not necessary the month following a new mortgage closing, but there is actually a way to skip 2 payments.  If the refinance is closed by the 15th of January, for example, a homeowner can roll their January payment into the loan by just letting the accumulated interest due for December be added to the payoff.  Since the first payment on the new note is due in March, they skip the February payment.  Voila!  2 payments skipped.

Buyers can also use a similar strategy to time their transaction and minimize the amount of cash needed at closing. If a buyer closes on the loan before the 10th day of the month, we can actually pretend (from the pro-rated interest aspect at least) that it closed at the end of the previous month.  The mortgage company actually gives the buyer an interest credit from the 1st to whenever the loan closes.  This is usually allowed for up to 10 days.

This option reduces the amount of cash needed to close the transaction, but it accelerates when that first payment is due.  This will put the note's first payment date as the 1st of the following month, effectively making the first payment due in 20 days or so.  If a buyer is strapped for cash and can make that first payment in a few weeks after another paycheck, closing before the 10th of the month is the cheapest time of the month to close a purchase transaction.

On the flip side....If the buyers have the extra money for the pro-rated interest and the closing is scheduled for the first part of the month, I recommend that they pay the interest to finish out the month.  Then their house payment is put off until the 1st of the month following the next month - 50-60 days away!  Paying a few hundred dollars in interest is a cheap way to put their FULL PITI payment off another month.

close

Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Tim Hill 12/02/2011 03:39 PM
  2. Ellen Dittman 12/02/2011 07:07 PM
  3. Lane Midgett 12/03/2011 12:35 PM
  4. Carri Schoeller 12/03/2011 03:02 PM
  5. Dale Taylor 01/14/2012 11:15 PM
Topic:
ActiveRain Community
Tags:
cash to close
skip a payment
refinance
payments
purchase

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainmaker
89,007
Leslie Leis and Dee Bundy
ERA Herman Group Real Estate - Fort Collins, CO
Sell Smart, Buy Wise & Live Well in Nrthn Colorado

Interesting post.  I'll have to keep this in mind for our buyers.  Thanks for the info!

-Dee

Dec 03, 2011 12:18 PM #44
Rainmaker
1,286,270
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Good thinking.  Of course in this market I am just happy to get anything closed and suggest people just close ASAP.

Dec 03, 2011 12:46 PM #45
Anonymous
Tyla Edwards

Interesting, really very interesting. Never thought about it but I will now. Thanks for the info.

Dec 03, 2011 01:48 PM #46
Rainer
47,928
Steve Opacke
LI House Tours - Smithtown, NY

If things are that tight that you would play with one payment you probably shouldn't be buying that house in the first place.

Dec 03, 2011 01:52 PM #47
Rainer
35,283
Carri Schoeller
Charles Rutenberg Realty - Sarasota, FL
Realtor ABR, e-PRO,Sarasota Luxury Real Estate

Great tips and good reminders.  Thanks for the post

Dec 03, 2011 03:00 PM #48
Rainer
299,076
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Kimo's Lifestyle Solutions

All good stuff and doable when you plan it accordingly.

Dec 03, 2011 05:10 PM #49
Rainer
183,120
John Rakoci
Eagle Realty - North Myrtle Beach, SC
North Myrtle Beach Coastal Carolinas

Nothing I want to discuss with buyers. If they need to skip / delay a payment they cannot afford a home. Mortgage or Christmas? The "or" indicates not enough reserves to be a homeowner.

Dec 03, 2011 05:47 PM #50
Rainmaker
650,437
Stephanie/Bob The Ruiz/Miller Team
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Doug,  Sounds like the old interest only loans but due whn you want to pay!  isn't eveythin negotiable?

Dec 03, 2011 07:32 PM #52
Rainmaker
169,399
Elisa Uribe Realtor #01427070
Wells and Bennett Realtors - Oakland, CA
California Homes for Sale in the East Bay

Wow, that's an eye opener. I wasn't sure where you were going with this in the begginning it sounded you robbing Peter to pay Paul. If people are  so cash strapped to buy christmas gifts that they have to strategize how to have money to buy a gift, they should try giving of their time, or a home baked good. Just my two scents on that one comment but I do understand your message was a lot more than how to help someone have more cash to buy a gift:)

Dec 03, 2011 09:04 PM #53
Rainmaker
128,117
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Great post.  Some really good tricks.  I like Gene's comment to close as soon as you can.  The one thing I would never do with the waiting until the 15th plan is don't wait for the 15th.  I'd say shoot for the 10th, that way if something messes up you can still make your payment in time.

 

Dec 03, 2011 11:36 PM #54
Rainmaker
848,043
Winston Heverly
Winston Realty, Inc. - Atlantis, FL
GRI, ABR, SFR, CDPE, CIAS, PA

I'm afraid it sounds a little complicated for the avreage homeowner. But a great post needless to say.

Dec 03, 2011 11:46 PM #55
Anonymous
Jennifer Bastian

I see how this could be helpful, but if the buyer is not a broker with a relationship with the bank there may be a very unhappy ending that will cost the buyer more than two payments in the long run.

Dec 04, 2011 12:12 PM #56
Rainmaker
347,764
Rodney Mason
Prospect Mortgage - Atlanta, GA
FHA 203K, USDA, VA, HomePath Renovation Specialist

I've heard many instances of this backfiring on home owners.  I would never ever suggest that someone not make a mortgage payment by its due date.  All 1st mortgage payments are technically due on the 1st day of each month.  If they are more than 15 days late, they will be charged a late penalty.

On an owner occupied property, there is a 3 day Right of Rescission, that must be factored in.  That 3 days pretty much puts someone at closing no later than the 9th of the month to be able to have their funds sent out on the 14th for receipt on the 15th.  Even on a second home on non-owner occupied, it would have to close by the 13th to make sure funds are received on the 15th. 

This strategy is just too risky in my opinion.

Dec 04, 2011 04:24 PM #57
Rainmaker
579,695
Phil Leng
Keller Williams Eastside Market Center - Kirkland, WA
Phil Leng Team - Residential Real Estate Experts &

Hi Doug,

Interesting post.

A mortgage guy, telling people how to skip payments.

I thought I was going to read how you have to be behind in your payments before you can do a loan mod

PHil

Dec 05, 2011 04:55 AM #58
Rainmaker
369,227
Sylvie Stuart
Keller Williams Check Realty 928-600-2765 - Flagstaff, AZ
Home Buying, Home Selling and Investment - Flagstaff, AZ

Very informative! I had never thought of it that way! I learned something, thank you!

Dec 06, 2011 08:35 AM #59
Rainer
39,619
Doug Walker
Salt Lake City, UT

Thank you all for great comments - most complimentary, some tentatively approving, a few downright disapproving and 2 that I would consider uneducated negative attacks.  Out of all the words to describe those of us in the real estate sales and finance business, timid and un-opinionated don't come up very often.  This has been well proven by these comments. 

This is a simple function of planning and having a competent mortgage professional that understands the process and can deliver as promised.  

Additionally, if you have clients that don't concern themselves with a few hundred dollars here and there, this really doesn't apply.  Unfortunately, a few hundred dollars does matter to many homeowners and buyers.  Especially first time home buyers and that is the group that will re-establish a foundation to a recovery in the still anemic housing market.  We need to give them every benefit we can to regrow our industry.

Dec 06, 2011 12:59 PM #60
Rainer
47,928
Steve Opacke
LI House Tours - Smithtown, NY

I think that's the point.  If a few hundred or a few thousand dollars matter, you shouldn't be buying a home.  That does not build a strong foundation as history has shown.

Dec 06, 2011 01:30 PM #61
Rainer
39,619
Doug Walker
Salt Lake City, UT

If lenders never allowed debt ratios over 36% and required cash reserves of 6 months PITI on every loan, this would be a long, long, long, road to recovery...... 

By the way - it wasn't the first time home buyers that caused this mess.  It was the spec buyers and investors. 

Dec 06, 2011 01:46 PM #62
Rainer
47,928
Steve Opacke
LI House Tours - Smithtown, NY

ummm  I don't have loan officers or buyers.  I also never mentioned debt ratios or cash reserves.  Based on what I have read here at Activerain by people in the trenches it was more than "spec buyers and investors" that caused the real estate mess.

I do know that buying a house with a few dollars left over in the bank is not the best way to stable home ownership.  But that's just me.  I'm a big cushion kind a guy.

Dec 06, 2011 02:54 PM #63
Rainmaker
997,080
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Doug... what I often do when I am selling a new home... is have the buyers close on the 2nd or the 3rd of the month.  Then, I arrange for the seller... the builder... to pay all of the buyer's closing costs and prepaids... (within the limits of the mortgage... usually six percent of the loan amount. 

That way... the buyers can close, they can limit the cash they must bring to closing, and they also get to go almost two months before they have to make a mortgage payment.

Jan 14, 2012 11:28 PM #64
Post a Comment
Spam prevention
Show All Comments
Rainer
39,619

Doug Walker

24 years of experience on your side!
*
*
*
Spam prevention