Prepaid costs are mortgage loan costs that are specifically related to the home being purchased rather than the real estate transaction in general.  The prepaid items are amounts that are required to be paid by the mortgage lender at settlement, in advance of their respective due dates.

The prepaid costs generally include items such as the real estate taxes, accrued interest due up to the first payment period, mortgage insurance premiums, hazard or homeowner’s insurance premiums and association dues if applicable.

The amount of the prepaid costs and escrow items should be the same no matter which mortgage lender is handling a loan request.  Other closing costs assigned by lender may be different depending in the lender selected and the loan type requested.  As an example: origination fees and processing fees are standard closing costs that will vary from lender to lender whereas the real estate taxes in escrow and prepaid interest charges will be the same regardless of the mortgage lender selected.

A breakdown of common prepaid costs for a home loan includes:

Prepaid interest or accrued interest which is the interest payment due on the loan from the day the loan closes up until the end of that month.  The amount of the prepaid interest will vary depending on what time of the month the loan closes.

Real estate taxes that are paid into an escrow account will be part of the prepaid items.  The escrow amount is equal to the first few months of the annual property tax payment.  The amount is based on the most recent tax bill available for the property.

The escrow will also include funds to pay the homeowners insurance premium on the property when it comes due.  This figure is based on the homeowner’s insurance premium statement supplied by the borrower.

Dues that may be payable to a condo or homeowners association may also be included in the prepaid costs.

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