With seller financing, full calendar month after closing before first pmt due?

Question

I'm working on my first offer that asks for seller financing. Reading through the contract offer that my longtime buyer's agent has prepared, I was surprised to see closing date August 7 and first payment due September 1.

My understanding is that the buyer normally gets the remainder of the calendar month after closing date, plus the next full calendar month, before first payment is due on the first of the following month. So with a closing date of August 7 I'd expect the first payment would be due October 1.

But when I asked about that, my agent said, "With no financing it's like rent. Pay on the first."

Is that correct? With seller financing do you not normally get that additional full calendar month before first payment due?

Chris Seveney · Answer

As others mentioned, first payment can be whatever day you want it to be but you will have on the HUD interest paid through that date. REmember mortgage is paid in arrears, meaning July interest is due on August 1 (your agent is wrong).

So if your closing date is August 7 most likely on the hud you will have interest through August 31st on the HUD and first payment would be due October 1.

Marco Bario · Answer

The first payment can be due whenever both parties agree, and payments can fall on any agreed day.

For instance, because you're closing on the 7th, all payments could be due on the 7th day of the month.

Bill B. · Answer

Over the long run they save a boatload of interest by making that payment September 1st instead of October 1st.

Imagine the first months payment is $2,661 on $400k at 7%. $2,333.33 of that is interest. So if you wait a month you add that $2,331 plus 30 years at 7% is another $15/mo payment and $3200 in additional interest or just a straight $7k in interest give or take if you don’t increase your payment. So waiting a month to make that payment costs you between $5,500 and $9,000. Why would you willingly do that?

Ryan Fox · Answer

@Greg Lovern Seller financing works just like bank financing. The buyer would pay you prepaid interest through the end of August. Their next payment would be due October 1st.

With seller financing, full calendar month after closing before first pmt due?

With seller financing, full calendar month after closing before first pmt due?

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