Many Massachusetts first-time home buyers are renting an apartment at the time they decide to start looking to buy their first home, so the timing of their home search and when they notify their landlord that they are ending their tenancy is important.
Whether a home buyer has a written lease with a specific term or is a tenant at will, also referred to as a month-to-month tenant, will determine how to plan his or her home search and notify his or her landlord that he or she is leaving. First, it is important to understand the timing of different aspects of the home-buying process.
For example, a first-time home buyer should know that mortgages are paid in arrears. In other words, a mortgage payment made on April 1st is a payment for the month of March. Why is this mortgage fact important? It is important to understand that a real estate closing on April 15th will result in the home buyer owing his or her first mortgage payment on June 1st. If the home buyer's apartment lease ends on May 31st, an April closing will not result in owing a monthly rental payment and a monthly mortgage payment in the same month.
Home buyers should be aware that their lender, in the example above, will want the interest on the loan paid at closing for the remaining days of April (or whatever month the closing takes place in). Closing towards the end of a month will result in less interest owed at closing, but the first mortgage payment will be do sooner.
Also, homebuyers should check their records to see whether they paid last month's rent or provided a security deposit at the beginning of their rental term. Having already paid the last month's rent and/or a security deposit gives a first-time home buyer a little financial flexibility, including the ability to close sooner on a property or maybe have a rent-free and mortgage-free month. Tenants should know that Massachusetts law requires the landlord to return the security deposit, plus interest, within 30 days of the tenancy ending; however, the landlord may keep any unpaid rent or the amount of money needed to repair damage done to the apartment (beyond normal wear and tear).
If you're a tenant at will (no lease), you need to provide notice to your landlord 30 days or one month before the due date of the next rent payment, whichever is longer. For example, if you give your landlord notice on April 20th that you are leaving, you'll be responsible for the rent through May 31st.
Of course, it is impossible to know how long it will take to find a home you want to make an offer and get an accepted offer. Some home buyers see a hand full of homes before finding one and other home buyers see many more, so the process may take weeks or months.
Also, if you are breaking your lease prior to the agreed upon term, you may be responsible for paying rent for the remaining months in the lease term. Some leases will allow tenants to terminate a lease early, but will require the payment of two months rent as a penalty. It is important to carefully review your lease before making any decisions and notifying your landlord that you are leaving.
In addition, any major repairs or renovations a home buyer wants to perform on a new home may need to be done prior to moving in, or a home buyer may just prefer to complete any remodeling jobs prior to leaving his or her rented apartment.
Of course the ability to be flexible on the closing date of a home purchase gives home buyers a stronger negotiating position. With that said, it may be inevitable that a home buyer has to make a rent and a mortgage payment simultaneously for one or more months.
So when is it safe to tell your landlord you're leaving? Should you wait until the purchase and sale agreement (P&S) is signed, the loan commitment has been received or the closing has taken place? It all depends on your risk tolerance.
Home buyers give their landlords notice that they're leaving all the time before the closing occurs. Some people wait until the P&S is signed, others wait until the loan commitment is provided by the lender. Some home buyers want a sure thing, and they just wait until the closing happens and the deed is recorded.
There are countless things that can happen – some are pretty rare – that can derail the closing or push back the closing date after a seller accepts a home buyer's offer. First, there is the home inspection. It's probably a mistake to notify your landlord that you are moving out prior to the home inspection.
Once the P&S is signed, the likelihood of closing increases; however, the loan commitment (the date by which your lender needs to provide you with a letter assuring that you're receiving the loan) is subsequent to the signing of the P&S. Once your lender has provided a loan commitment, there is even a greater chance you will reach closing. After the loan commitment date is probably the most popular time for home buyers to notify a landlord of their intention of ending a tenancy.
Are there other issues that can arise between the loan commitment date and closing? Sure, but most are pretty rare. Title issues are rare, but do occur, and title issues may kill the deal or delay a closing. Lenders typically recheck credit reports and conduct employment verification within a 72 hours of closing. A job loss or negative notation on a credit report could result in a home buyer not getting a home loan. It may make sense not to schedule a closing date to close to the date you must vacate your apartment, just in case the closing is delayed a few days.