Prepaid vs Closing Costs | Ukiah Real Estate

With all of the things that happen during the home-buying process, prepaid costs can sometimes be a surprise, and we don't want any of those. So you're in the right place to learn the difference between closing costs and prepaid costs. Let's get into it.

Hi, my name is Kasie Gray, a Realtor broker, associate, and mom who loves helping families find their dream homes. Today, we're gonna talk about the difference between closing costs and prepaid costs. Your closing costs are your standard fees that come with buying a house, um, as a buyer. Those include escrow fees, title fees, title, insurance fees, and various notary fees if any.

And lender fees, you don't pay for your realtor. Typically, as a buyer's agent, they get paid through by the seller, so that's not a closing cost fee that you have to worry about as a buyer. But there are various fees when it comes to closing costs. If you would like my free buyer's guide, that will be linked down below, but we're talking about prepaid costs right now, so let's get into that.

Prepaid costs are going to be your initial escrow deposit, which is a chunk of money that you're going to put towards. The house, think of it kind of like a security deposit on a rental. Um, you give them a chunk of money. If you uphold your end of the bargain, that money goes towards your down payment. If for some reason you decide to back out while you still have contingencies or reasons to, you get that refunded to you.

And if you go through with it, it goes towards your down. So that is a prepaid cost. Next up on the list is your homeowner's insurance premiums. So typically most lenders, depending on how much you're putting down, will want you to pay some prepaid and put some money towards your impound account. Your impound account will collect money for your taxes, your insurance, and your mortgage.

The mortgage company will then pay out your insurance and taxes, but you'll make one payment to one place. So, it kind of wraps it all into one, which can be great for first-time home buyers or people who aren't so great at managing all of the different monies and funds and the places that money needs to go.

So some lenders could wanna see up to six months. Or just three months depending on how much you're putting down. So that's a question that you're gonna ask your lender specifically. Um, but six months of prepaid insurance could be quite an index expense for most people. So that's the money you're going to make sure you have in mind when it comes to your prepaid.

Next up is real estate property taxes. So, as I said, your lender is going to take the. From your payments and pay out those taxes and that insurance. But this impound account will hold the extra funds. So if you don't make the payment, they can still pay towards property taxes. Um, or if for some reason your property tax bill is more than you have expected, they can pay towards those.

So that's a fee that you're going to wanna expect. Again, you'll wanna talk to your lender, but it should be around six months of property taxes and then mortgage interest. So depending on the lender, the type of loan, and, um, what you are, If you're buying down your rate, you could be paying towards your mortgage interest.

So these are all the prepaid costs that are separate from closing costs, but kind of all wrapped in the same bubble. If you have questions about what kind of funds you're gonna need to have ready for buying your first house, your dream house, whatever it might be, I am here to run some numbers for you. Of course, free of charge. I want you to be aware of what that looks like, what the process looks like, and how I can help you!