I hear about “closing” costs and “pre-paids”. What are these, exactly?
Closing costs are the actual fees involved in obtaining the loan. Examples include: credit report, appraisal, attorney fees, underwriting/administration fees, survey, title company fees, etc. Pre-Paid fees are the fees that make up YOUR escrow account. For instance, you will pay 1 year of your hazard insurance in advance. An additional 2 months of insurance will go into your escrow account, and with each monthly payment, 1/12th of the annual premium will be collected. Then, at the end of the first year of your mortgage, the Investor will have sufficient funds in your account to pay the premium for the next year. The same applies to the property taxes. Approximately 3 months will be collected from you to put into YOUR escrow account, and any additional needed taxes will be collected from the seller. Then at the end of the year, there will be sufficient funds to pay the taxing authorities. Pre-paid expenses also include interest on your new loan. If your property is in a 100 year flood z
