What are closing costs? What are prepaids? Almost every borrower I speak with during the initial stages of buying a home or refinancing ask what their closing costs are going to be. When they ask this, I know they are really asking what their bottom line is. Most people are not familiar with the technicalities of our terminology. But there is more to it than they realize and technically what they are asking me. When buying or refinancing a home one will have closing costs and prepaids. So let’s discuss what they both are.
Closing Costs: These are the fees or charges if you will that go to any third party that has to do with the real estate transaction. For example you have an appraisal, a surveyor, a title company, an underwriter and also the loan consultant. You will need all of these outside parties which conduct a certain service to make the loan work and to get an approval. All of these fees paid to these entities are what make up your closing costs. But that is not your bottom line. There are also prepaids.
PrePaids: These are the collection of a certain amount of months depending on what time of year you close that will be set aside in an escrow account to pay your property taxes and homeowner’s insurance. Even though a portion of your monthly mortgage payment goes toward your property tax and home insurance, the up front escrow is more of a head start if you will. Here in Tampa, FL when your taxes are due in November, your lender will pull from that escrow account and pay those taxes for you. The same will paid for home insurance each year whenever those are due. Also, included in your prepaid costs is any interim interest which will cover that first month after closing until your very first mortgage payment under the new terms.
So know the difference when you ask about closing costs. If you are shopping your scenario around and a loan consultant knows this, then technically they can get away with giving your what their closings costs will be. The problem with that is, if you do not know the difference then when you shop it to another company and see they gave you a bottom line figure which includes closing costs and prepaids, you will think that one company is better or more competitive than the other. When in fact they are not. It’s a tactic I never like to use because it would just be delaying the inevitable. You will come to realize that you are going to need more money to close sooner or later. And if you’re upset then your experience will not have been a very good one and you will never come back to use that company again. Hopefully you have a better understanding of the difference between closing costs and prepaids.
Green House Mortgage is a full service home loan origination company in Tampa, FL and servicing the state throughout. If you have any questions or concerns with the article or simply need mortgage advice please call 813-732-3155 or email us at firstname.lastname@example.org. We are dedicated to giving you the best mortgage consultation available. Green House Mortgage – It Pays to Go Green!