When you’re buying a home, it’s important to factor in closing costs. These are the fees paid to various parties involved in closing your real estate transaction. This includes your lender, title company, and appraiser. Another expense in closing on your home is your prepaids. These are funds collected in advance to cover the expenses related to your homeownership – property taxes, homeowners insurance, and mortgage insurance. Both prepaids and closing costs are a necessary expense, so its important to know what they are and how much you’ll pay. This way, you can budget accordingly and be prepared.
What are closing costs?
Closing costs are fees paid to parties involved in the real estate transaction. The amount of closing costs you’ll pay will vary depending on your loan, the purchase price of your home, and the state in which you live. Some of the most common Closing Costs include:
- Loan origination fee
- Appraisal fee
- Credit report fee
- Title insurance
- Recording fees
- Transfer taxes
What are prepaids?
Prepaids are essentially deposits that you make into an escrow account. This account is held by your lender and is used to pay certain expenses on your behalf, such as property taxes, homeowners insurance, and mortgage insurance when each of these are due (This can be monthly or annually). The amount of prepaids you’ll need to pay will vary depending on your loan and the state in which you live.
Prepaids and closing costs can be a significant expense. The great news is there are options in how these can be paid. The funds can come from your personal accounts (Ie savings or 401K.), they can be paid for by a gift from family, or the seller can provide you a credit to pay for the expenses for you.