Usually, buyers move into a home they purchased only after escrow closes, but there are times when buyers get possession of the home before closing. While not very common, buyers who ask to move into the home before closing might have a variety of reasons to do so. Perhaps their home has sold and is closing shortly, or maybe they’ve been renting and their lease is expiring soon. In these cases, they’re going to need a place to live before they vacate their home or apartment.

It’s not difficult to see how this situation can become problematic. After all, buyers are not yet on title when the home is in escrow, and are essentially living in a home that’s not yet theirs. If a seller agrees to allow a buyer to move in before closing, both parties need to be aware of the potential issues that could occur in this impractical situation.

Here are some potential downfalls that can be faced with early buyer possession from the perspective of the seller.

The Closing Could Take a Lot Longer Than Anticipated

There could be any number of reasons for a delay in closing. In the meantime, the proceeds of the sale are still stuck in escrow that the seller could be using to put towards the new mortgage. Whether there are issues with title that need to be dealt with, additional documents that the lender needs before financing goes through, or problems with the appraisal, any delays in closing can leave sellers concerned about whether the deal will close at all, while strangers are living in their home. 

The Sale Falls Through

While the majority of real estate deals close escrow successfully, there are times when sales fall through. It could be that the buyer is unable to secure financing, or perhaps there are problems with the closing documents.

If this happens, not only are sellers in the position to have to start marketing the property all over again, they also have to contend with buyers that now must vacate the premises that they believed was already theirs. In the meantime, they could have made changes to the home, or may have even trashed the place after learning the deal was dead.

The costs associated with fixing up the house before listing it can be pretty high. The carrying costs of the home, including mortgage payments, insurance, taxes, maintenance, can also add up. In addition, the home might not even sell for the same amount compared to the first time around if the market has changed since then.

Defects Are Discovered That Could Deter Buyers From Going Through With the Sale

Sometimes issues with a home are not noticed by buyers during scheduled showings. That’s why home inspectors are brought into the picture in order to uncover potential issues, but it’s not inconceivable for problems to be discovered until after buyers move into the home.

It’s possible for buyers to find out about certain defects in a home after they’ve moved in. Whether the seller was unaware of the issues or simply did not disclose them, such defects can turn buyers off to the point that they may decide to cancel the deal (if the necessary clauses are inserted in the contract) and request to have their deposit returned.

The Buyers May Make Additional Requests Before Closing

If buyers want any repairs rectified before closing, these should typically be listed in the original purchase agreement. However, it’s possible for buyers to add to this list after they’ve moved in and taken a closer look at the home. Most of the time they’re minor issues that the buyers simply just want to see changed, which can be really annoying if there was a home inspection and the repair process has already been discussed.

Insurance Coverage Could Be Unclear

If all goes well, there will be no need to have to make an insurance claim. But what if something happens that warrants a call to the property insurance provider? Who is responsible if the home is damaged or someone gets hurt on the property while the buyers are in possession? Is it the buyer, who’s living in the home, or the seller, who technically still owns it? Things can get really complicated when it comes to insurance coverage on a home that’s under one person’s name with the soon-to-be owner already living in it.

The Bottom Line

A buyer moving into a home before closing is certainly not an ideal situation, but if it does happen, it should only be carried out after both parties have spoken with their respective real estate agents or lawyers.

A written contract should be drafted to specifically detail the terms of this agreement. It should include a per diem fee that the buyer would have to pay the seller for every day that they are living in the home to cover costs until escrow closes, as well as stipulations about how and when the deposit will be returned if closing doesn’t go through. Buyers should also have their own liability insurance in case of any incidents that might happen during the early occupancy period. Real estate professionals can provide a contract addendum that deals specifically with early buyer possession.

Bucktown and Wicker Park: Always looking for your next caffeine fix? You’re in luck! Fairgrounds Coffee & Tea Bar opens next Wednesday in the Wicker Park neighborhood. Located at 1620 N Milwaukee Ave, the shop has a grand opening planned for Wednesday, March 29.  The shop will donate 20% of its opening day sales to Wicker Park’s A.N. Pritzker School. Fairgrounds will also give Chicago public school teachers a 10% discount year-round. The menu will include eight distinct roasters for pour-over coffee and draft cold-brew. The shop will also serve Rishi tea, sparkling teas, granitas, and kombuchas. They will also serve a number of food items, including hot and cold sandwiches, salads, pastries, and breakfast tacos. Fairgrounds is open Mondays through Thursdays from 6:30 am to 9 pm, Fridays from 6:30 am to 10 pm, Saturdays from 7:30 am to 10 pm, and Sundays from 7:30 am to 9 pm.

Lakeview: The much-anticipated opening of Lakeview’s new Whole Foods is finally here! Located at 3201 N. Ashland, the store is Chicago’s second largest Whole Foods outpost. The store opens at 9 am on Wednesday, with a host of goodies for opening day customers. The first 500 people will receive gift cards for anywhere between $5 and $500. They will also donate 1% of sales in the first 5 days to five  neighborhood schools. Special features include Allegro Coffee, a first-bar coffee bar that will serve espresso, cold-brew, wine, and beer. The Wine Box, tucked in the back corner of the store, will sell 35 wines by the glass, as well as some small plates. Check it out starting Wednesday to see the other amazing features of this new store!

Lincoln Park: If you live in Chicago, you already know, many TV shows and movies at locations all over the city. Well now, a little-known spot in Lincoln Park can be added to that list. The green roof at the Notebaert Nature Museum is featured in a new web-only nature series from WTTW-TV. “Urban Nature”, the 16-part series, was just released on the WWTW website on March 17. This rooftop garden not only has incredible views of the Chicago skyline, but is also home to a sanctuary for prairie grasses. Dan Protess, writer and producer of the show, says, “We know that green roofs cool buildings and absorb rainwater, but scientists are asking whether or not they might provide refuges for wildlife.” Want to find out more? Check out the whole series on the WWTW website, it will only take 100 minutes of your time to watch the entire thing.

Edgewater: If you’ve ever driven through the Edgewater neighborhood, you’ve certainly passed the famous pink building at the corner of Sheridan and Bryn Mawr. This weekend marks the second annual Free Art Fair at the Edgewater Beach Apartments. From 10:30 am to 3:30 pm on Saturday March 25, the free show will display jewelry, paintings, photographs, and more. All pieces are from 15 artists who reside in the apartment building. 10% of the proceeds will be donated to Care for Real food pantry.

South Loop: Lollapalooza, a popular Chicago music festival, has just released its lineup for 2017. From August 3-6, Grant Park will be filled with concert-goers and famous bands. Featured acts include Chance the Rapper, The Killers, Muse, The XX, Blink-182, and many more. Four-day passes and single day passes are already sold out, but you can still purchase VIP passes and packages here. This year, the festival debuts its new “platinum” passes. While not cheap ($2800 per day), the passes include access to front row viewing areas, food and drinks, air-conditioned restrooms, and onsite concierge services.

Evanston: Are you a book nerd? Don’t miss out on this great opportunity in Evanston! This weekend is Evanston’s Public Library Book Sale, named “The Best” by the Chicago Reader. The proceeds of the sale will support the collections and services of the library. Sale hours are Friday, March 24, from 10 am to 5:30 pm (with a $5 charge from 10 am to noon), Saturday from 10 am to 5:30 pm, and Sunday from 12 pm to 5:30 pm. For more information, check out their website.

RACHEL HOOVLER & DEAN’S TEAM CHICAGO

The Lakeview neighborhood has a veritable cornucopia of exciting restaurants, making it nearly impossible to choose a place to eat. Wandering up Clark St. earlier this week, I happened upon HopCat. The large, colorful stained glass windows are immediately inviting. The promise of over 100 beers on tap didn’t hurt either! I started off with a draft of the Steeped Emperor’s Lemon Saison, by Moody Tongue Brewery. This beer is featured on HopCat’s “Local 30” draft list, a rotating list of local Illinois beers. The beer was light and clean with a hint of lemon; a perfect aperitif. The menu is extensive, so it took me a few minutes to hone in on what I wanted to eat. I settled on the Chicken Salad Wrap. I make a delicious chicken salad (if I do say so myself), so I am a harsh judge of others’. This was an excellent choice. The cold chicken salad was packed with fresh rosemary, grapes, crisp red onions, bacon, and crunchy pecans. Finished off with spinach, the whole thing was packed tightly in a warm wheat wrap. HopCat is known for its “Crack Fries” (named one of the Top 10 French Fries in America by Food Network Magazine). My wrap came with the plain crack fries: beer battered fries sprinkled with black pepper seasoning. They were perfectly seasoned and so tasty. My friend ordered the classic BLT, served with a twist here by adding blue cheese and on rye bread. He was quite pleased. The real star though, was his side of Loaded Crack Fries. A large pile of fries came smothered in bacon, red onion, pickled jalapeños, and warm cheese sauce.  I was immediately jealous and wished I had ordered mine “loaded” as well!

In addition to affordable regular menu prices, HopCat has some great Happy Hour specials. Offered Monday through Friday from 3-6 pm, get $5 off all burgers and pizzas, $1.50 off Local 30 beers and select drafts, and $1.50 off well cocktails and wine. HopCat is open Mondays through Thursdays from 3 pm to midnight, Fridays from 3 pm to 2 am, Saturdays from 10 am to 2 am, and Sundays from 10 am to midnight. Stop in this last week of March to try “The Dip”: porter-braised beef piled high on a French roll, topped with Swiss cheese, blue cheese-black pepper mayo, and haystack onions.

RACHEL HOOVLER & DEAN’S TEAM CHICAGO

It’s often recommended for buyers to close at the end of the month – or at least as close to it – in order to avoid being stuck with having to pay more prepaid interest when the deal closes. This is often a good strategy to save money, but it needs to be fully understood in order to find out how much money truly is saved at the end of the day.

For starters, what exactly is prepaid interest? Simply put, it is mortgage interest that’s paid in advance. Mortgage interest is paid out in arrears, unlike rent, which is paid in advance. That means a mortgage payment that’s made on May 1st pays for the interest from April.

Borrowers usually prepay their mortgage interest on a new home loan or when refinancing an existing mortgage. The interest will be paid up to 30 days away from when the first mortgage payment is due. If your home closes on May 15th, for instance, the first mortgage payment will need to be paid on July 1st. In this case, the July payment will cover the interest for June, and the amount due to cover the time period from May 15th to the 31st will be paid at closing of escrow.

This payment is what’s known as “prepaid interest,” which essentially covers the time period during the month between when the lender closes the mortgage and the date that the first mortgage payment is due.

How Closing Near the End of the Month Can Save on Prepaid Interest

Using the above example, you would have to pay 16 days of prepaid interest (from May 16th to the 31st) at closing if the loan closes on May 15th. On the other hand, you can avoid paying much in prepaid interest if the loan closes near the end of the month. While this might not amount to much in some cases, it can result in significant savings in many other scenarios, particularly if the home loan amount is quite high.

Buyers who are struggling to come up with all the upfront closing costs might find closing near the end of the month a great way to save a few bucks in prepaid interests, no matter how nominal the amount may be. 

What Are the Downfalls of Closing at Month-End?

Borrowers should also carefully consider closing dates in terms of how soon their first mortgage payment will be due. While you will have to come up with the 16 days worth of prepaid interest amount based on the previous illustration, you won’t have to worry about having to make your first mortgage payment until July 1st. That’s quite a bit of time to prepare yourself for your first official payment.

Now consider paying just a day or two worth of prepaid interest if you close at the end of the month, say, on May 30th. In this case, you’d be saving quite a bit of money in prepaid interest, but your first mortgage payment will come much sooner compared to the previous scenario.

As such, month-end closings mean buyers will pay less in prepaid interest, but they’re only skipping one monthly mortgage payment. Closing earlier in the month, however, might mean more money paid in prepaid interest at closing, but two monthly payments can be skipped. At the end of the day, it’s not just important to figure out how much you can save, but how the date of closing that you choose can impact your cash flow.

In addition, it’s important to consider the fact that escrow and title companies are typically swamped with closing deals since the vast majority of real estate contracts close at month-end. This traffic jam at the end of the month can increase the odds of delays, which can actually wind up pushing the closing out to the beginning of the following month. At that point, buyers will need to fork over more money for the additional prepaid interest.

The Bottom Line

Closing towards the end of the month can certainly save you money in prepaid interest. However, there are other considerations to make, including how soon the first mortgage payment will need to be made and the potential for delayed closing due to busy lender schedules. Carefully consider your financial situation and determine whether you’d benefit more from cutting down on closing costs or delaying that first hefty mortgage payment.