Oregon Mortgages

Closing Costs Vs. PrePaids

You’ll routinely hear both of these terms throughout the mortgage and real estate world. If you are a home buyer you will here your Agent and your Loan Officer talk about these. This blog post is a continuation of my last one titled “Bait & Switch”

It is quite easy for a consumer who isn’t the most educated with the loan process to get fooled here. If you ask a loan officer to put together some numbers for you (after he has a completed loan application, he should never quote you interest rates without having a full analysis) and you ask the simple question “well, what are my closing costs?”

Simple question right? wrong! If the loan officer knows he is competing for your business and you ask for the closing costs he will disclose JUST the closing costs. Which could make the loan sound like a GREAT deal. You have prepaid items as well which I will define directly below.

Closing costs = 3rd party costs involved. ALL Title fees, broker fee for your Loan Officer and any other fees their company charges, the lender charges you an “underwriting fee” to process the loan on their end, appraisal…

Prepaids = Items that you would have to pay regardless so they are not considered closings cost. That is all Prepaid Interest, Insurance and Taxes reserve accounts.

If you are going to have the lender pay your insurance and taxes on your behalf they add it to your payment and pull a portion out every month to add to a reserve account so when your taxes are due they pay them for you. These are known as prepaid items. If you are shopping your loan and comparing loan officers be sure to ask them “what are all my closing costs and prepaid items or What would be my total settlement charges to close this loan” You can at least then compare Good Faith Estimates and make an educated decision.