What is Prepaids?
Prepaids are costs paid at closing for expenses that are due before the first mortgage payment, such as property taxes and homeowners insurance premiums.
Prepaids are closing costs that cover expenses for the period before your first mortgage payment. They typically include property taxes, homeowners insurance premiums, and sometimes mortgage interest. Borrowers encounter prepaids because lenders require taxes and insurance to be paid ahead of time to protect the collateral. Watch for the amount of prepaids, as they can increase the cash needed at closing. Compare the Loan Estimate and Closing Disclosure to ensure prepaid amounts match and are not duplicated. Prepaids are separate from recurring monthly escrow payments.
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