What are Prepaid Costs When Buying a Home?
June 9, 2022
It’s no secret that buying a home is a significant expenditure. Most home buyers will save up for years to afford the down payment and ensure they’re in a solid financial state before beginning the journey. However, many first-time home buyers forget to consider the upfront, prepaid costs that also come with buying a home. It’s essential to be aware of these costs before you get too deep into the home buying process to plan well. Learn all about these prepaid costs below.
What is a Prepaid Cost When Buying a Home?
Prepaid costs are fees paid to a third party that are dependent on the property in question. Home buyers pay these fees early, typically before any payments are made to the mortgage and before they are officially due, to act as a security measure. While the fees are not dependent on your mortgage lender, the lender is responsible for estimating these fees when they complete your loan fee estimate.
Are Prepaid Costs and Closing Costs the Same Thing?
No, prepaid costs and closing costs are not the same. Your prepaid costs are dependent on estimates, whereas your closing costs are fixed costs that depend on your home buying process. While not always true, home buyers can get the lender or the seller to pay for closing costs.
Prepaid costs are fees that are paid early and ultimately depend on the property’s value. Closing costs reflect the services you’ve used along the way to close your home and do not depend on the value of your home. Before you close on a home, you’ll need the assistance of professionals such as lawyers and appraisers—the fees from these services make up your closing costs.
What are Some of the Most Common Prepaid Costs When Buying a Home?
Prepaid costs’ amounts and makeup will vary depending on each homebuyer’s case. If you want specific information for a house you’re interested in purchasing, contact Anne Townes Team, Chester County, PA, real estate agents today.
Prepaid costs are estimated fees for property taxes, interest on your mortgage and homeowner’s insurance premiums. The costs may also include mortgage insurance premiums for some home buyers. When you pay your prepaid costs, it’s important to remember that these are only estimates. The actual fees may change after closing on your home and choosing an insurance provider and plan.
Are Prepaid Costs Related to Escrow?
Prepaids and escrow are related, but they are not the same. When you pay your prepaid costs, they are put into an escrow account and the lender or escrow agent uses those costs to pay the appropriate fees down the line. Often, the total balance of the escrow will be greater than the prepaid costs.
What’s more, your prepaid costs are paid when you’ve closed on the home, but the escrow account is commonly used for ongoing charges throughout your mortgage. For example, monthly bills like taxes and insurance will be paid out of an escrow account.
Let Anne Townes Team Guide Your Home Buying Journey
Buying a home will always be one of the most significant financial events in a person’s life. As such, it’s important to be fully aware of all the fees that go into the process. Reach out to Anne Townes Team to learn more about the home buying process so that you can be prepared for your first home!