Costs

Prepaids

Prepaids are upfront costs for things you pay regularly as a homeowner, collected at closing to get you started. They usually include some homeowner's insurance, property taxes, and interest for the days between closing and your first payment. They aren't lender fees, they're your own expenses paid a little early, so don't confuse them with closing costs proper.

Prepaids trip a lot of buyers up, because they show up in the closing numbers and feel like fees. They’re not. They’re your own future costs as a homeowner, like the first year of insurance and a few months of taxes, just collected early so your escrow account starts with a cushion.

You’ll find them in box F on page 2 of the Loan Estimate, alongside prepaid interest for the partial first month. The helpful way to think about it: this isn’t money lost to the lender, it’s money set aside for bills that are coming anyway.

Related terms

Escrow

Escrow has two meanings in a home purchase. Before closing, it's a neutral account that holds your earnest money and documents. After closing, an escrow account is where your lender collects part of your payment each month to pay property taxes and insurance for you when they come due.

Closing Costs

Closing costs are the fees you pay to finalize your home purchase, on top of your down payment. They include lender fees, title and escrow charges, an appraisal, and prepaid items like taxes and insurance. Closing costs commonly run roughly 2% to 5% of the purchase price, though it varies by location and loan.

Property Taxes

Property taxes are what your local government charges based on your home's assessed value, and they fund schools, roads, and services. Lenders often collect them monthly in an escrow account and pay the bill for you when it's due. Rates and amounts vary a lot by state and county, so the same priced home can cost very different amounts.

Last updated: June 13, 2026

This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.

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