What Are Prepaid Items?
Prepaid Items: Costs paid ahead at closing, like the first year of insurance, interest and escrow deposits.
Also called: prepaids
Prepaid items, or prepaids, are expenses you pay in advance at closing. Unlike fees, they aren't charges for a service; they're payments toward costs of owning the home.
Common prepaid items
- Homeowners insurance: usually the first 12 months of premium
- Prepaid interest: daily interest from your closing date to the end of that month
- Initial escrow deposit: a few months of property taxes and insurance to start your escrow account
- Property taxes that are due soon after closing, depending on your area
Why closing date matters
Prepaid interest is higher if you close early in the month and lower near the end. Your first mortgage payment then comes about a month later either way.
Good to know
Prepaid amounts can change between the Loan Estimate and the Closing Disclosure without limit, because they depend on dates and actual premiums.