For every new buyer client that I am helping, I always sit down with them, at my office, and go through the entire process of buying a home.  When talking about the buying process, closing costs and prepaid are the number one things that buyers often get confused. There is a difference between the two.  When you close on a home you will get a HUD-1 or commonly referred to as settlement statement.  The settlement statement is all the fees and charges that are included in the final sale of the home.  Most buyers think that closing costs are every that is included in the settlement statement.  This is not true.  There are closing costs and prepaid items.

What are Closing Costs?

Closing costs are costs that are associated with getting the loan and house purchased finalized. These are fees from the lender and from the closing attorney.  These fees can include:

  • Mortgage Origination Fees
  • Recording fees
  • Title Insurance
  • Attorney's fees
  • Recording fees
  • Transfer tax, etc.

What are Prepaid Items?

Prepaid items are monies that are charged to set up the buyers escrow account.  An escrow account is an account that your mortgage service will pay the certain taxes and fees every year on you behalf.  These include:

Depending on when you close on your house will determine where you fall in the escrow calendar. An escrow calendar shows how many months of each you will need in order to have enough money to pay the next year property tax, homeowners insurance, and PMI.

Make sure that you know the difference between closing costs and prepaid items that are on a written on the settlement statement. Prepaid items are called “Items required by lender to be paid in advance” and closing costs have their labels that contain the term “Charge or fee.”