Time it Right: Here’s What the Transition from Renting to Owning a Home Looks Like (and Costs)

There is so much that’s confusing about the home buying process as a first-timer, and all I can really do (beyond writing articles like this one) is absolutely promise that an attentive real estate agent and a knowledgeable mortgage broker will be your lifelines. You’ll be surprised how much you learn about earnest payments, escrow and amortization in that month or so it takes to close. Definitely more than you paid attention to in college accounting, I’ll tell you that much.

I remember before my husband and I closed on our home last summer, one of the biggest questions I had about the process of transitioning from renter to homeowner was totally wrapped up in the logistics of the move. How long does it take to close? When do we give notice that we’re vacating our lease? Will we get stuck paying for rent and a mortgage in the same month? (Can we afford that?) It’s confusing, I know. So here are a few things that might help:

The moment the seller accepts your offer, you might feel like you can finally let out a breath you didn’t know you were holding. The home is (almost) yours! From there, though, it does take some time to get the keys in your hand — anywhere from 30-50 days, usually. The closing period is agreed upon once you go under contract, but it can be delayed and the period extended due to unforeseen circumstances, like a failed inspection, appraisal issues or a problem with the title. So the short answer is: It depends. But there’s good news…

Right now, you pay rent for your apartment on the first of the month for the month ahead — or, to reiterate, the rent you pay to live there for the month of July is due in advance, on July 1st. Mortgage payments are collected in arrears, though, meaning that the mortgage payment you owe for July will be collected on August 1st. In fact, your very first mortgage payment won’t be due until a full month after the last day of the month in which you close. For example, a mid-July closing means the first payment will be due September 1st: you pay your first full month’s mortgage (for August) on September 1st, and you’ll pay the mortgage interest due for the latter part of July (from closing through the end of the month) at the closing table — it’ll be wrapped into your closing costs, which your lender will estimate for you once you’re under contract.

Here is an example of one smooth contract-to-closing timeline:

Your offer is accepted! You agree on a 45-day closing period.

You close on time 45 days later… congratulations!
You’ll pay 24 days worth of interest at closing—for September 7 through the end of the month. For what it’s worth, the total monthly interest on my roughly $300,000 loan (which I covered in more detail here) was around $930 at the start.

You pay your first ever mortgage payment.

So you see, even though you locked down the house of your dreams in July, you don’t owe a monthly mortgage until November.

There’s no secret to timing this right, especially since there are many variables specific to your situation. Your specific plan of action depends on how much notice you have to give with your landlord, how long your closing period is, and also whether or not your closing is delayed. You kind of just have to take a leap and hope for the best but prepare for the worst. The good news is that the whole in advance/in arrears thing makes the financial picture a little easier to swallow.

Here are a few ways it could, potentially, totally hypothetically, go down. I grabbed these scenarios from a really helpful comment on Reddit penned by a real estate professional:

In this scenario and the next one, you don’t have to give your notice to vacate your apartment until after you close. You’ll notice that with a 30-day notice period at your apartment, it doesn’t matter the terms of your closing period.

• Pay rent on April 1, like normal.
• Close your home on April 25. About 5 days of pre-paid interest will be paid at closing table.
• Rent is due again May 1. You put in 30 days notice with your rent check.
• Your first mortgage payment is not due until June 1, for interest that accrued during May.
• During the entire month of May, you have access to both your old rental place, and your new home, without having to pay double housing expenses in May, for a nice, relaxing, non-rushed, leisurely move.
• You never had a month with double housing expense, and you had a full month to move.

A delayed closing puts a bump in the road, but with a 30-day notice, you still have the luxury of not giving notice until the day after you close — without paying any “double” housing expense.

• Pay rent on April 1, like normal.
• Find out on April 23 that closing is delayed.
• Pay rent on May 1, like normal.
• Close on May 15, finally. There are 15 days of prepaid interest due at the closing table (out of your “house savings and closing costs” bucket, not your “pay monthly bills” bucket).
• Give 30 days notice on May 16.
• Pay your last rent on June 1 — either for half the month (30 days after your May 15 notice, or the full month, depending on your lease terms).
• Nice leisurely non-stress 30 days to move, from about May 16 to at least June 16 where you have access to both places.
• Your first mortgage payment is due July 1.
• You never had a month with double housing expense, and you had a full month to move.

If your apartment requires a 60-day notice or more, things get a little trickier to time perfectly. In that event, you’re playing a balancing game — and will have to give up a bit of either money, time or security. Your real estate agent or mortgage broker will be willing to help you look at your lease and budget and time everything out right, even before you’ve found the home of your dreams.