Prepaid Items

Prepaid items are costs collected at closing that cover future expenses such as homeowners insurance, property taxes, and per diem (daily) interest through the end of the closing month.

These items are not lender fees — they are real expenses that would be due regardless of the mortgage. Collecting them at closing ensures your escrow account is funded and your insurance and taxes are current from day one.

Prepaid items are sometimes confused with closing costs, but they are categorized separately on the Closing Disclosure. They represent future obligations being paid in advance, not fees for loan processing or services.

Why This Matters: Prepaids increase the amount of cash you need at closing. Understanding what they cover — and why they are collected — helps you plan accurately and avoid surprises on your Closing Disclosure.