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Closing & Pre-Paid Costs 

Closing Costs

Just as the name suggests, closing costs are expenses that are paid at the time the home transfers ownership: at closing. These can include any number of charges; the most common are lender's charges, title charges, taxes, prorated first payment, and inspection charges. Take another look at the chart in the "prepare yourself" section for estimates of closing costs.

You may be thinking at this point that Realtors must be rich, but not a penny of this goes to me. A significant portion of these costs are from the lender, your first year's hazard insurance, prorated taxes, and first prorated interest payment. I will always provide you with an estimated cost sheet before you make any offers, so you have a good idea about what to expect before it happens.

Pre-Paid Costs

While closing costs are costs paid at closing for services or goods that you have already used (title insurance, loan costs, inspections, etc...), Pre-paid expenses are those that are collected at closing but the services or goods aren't received until after closing. Until the closing the funds are held, usually by the bank, in an escrow account until closing.

These expenses include Insurance, Taxes, Pre-paid interest (to the end of the month) plus the amount the bank requires to be held as a buffer for the escrow account.  The lender will pay the insurance amount on your behalf on the anniversary of the policy, and the property taxes will be paid every December.

In all cases, this money is still yours and you receive it back once you pay off the loan, sell the house, or refinance, so while it is out-of-pocket money up front, it is still yours in the long run.

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