Skipping 2 house payments

By
Real Estate Mortgage Broker

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.

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Re-Bloggged 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
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Topic:
ActiveRain Community
Tags:
cash to close
skip a payment
refinance
payments
purchase

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Rainer
36,119
Doug Walker

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.

December 06, 2011 12:59 PM
Rainer
47,628
Steve Opacke
LI House Tours

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.

December 06, 2011 01:30 PM
Rainer
36,119
Doug Walker

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. 

December 06, 2011 01:46 PM
Rainer
47,628
Steve Opacke
LI House Tours

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.

December 06, 2011 02:54 PM
Rainmaker
995,711
Karen Anne Stone
Fort Worth Real Estate
New Home Hunters of Fort Worth and Tarrant County

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.

January 14, 2012 11:28 PM
Anonymous
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Rainer
36,119

Doug Walker

24 years of experience on your side!
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