Are Prepaid Items Considered Closing Costs? – Booth Escrow

Are Prepaid Items Considered Closing Costs?

Have you noticed that the NWMLS changed the Financing Addendum and took out the words “including prepaids” from the Loan Costs Provision paragraph? The question is whether or not the seller intended for the credit to be applied to the buyers prepaid items. The addendum says the credit “shall be applied to buyers loan and settlement costs”.

Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items”. Non-recurring closing costs are any items which are paid just once when buying property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes, homeowners insurance and interest.

I have worked with lenders who have excluded prepaids from the loan processing unless the addendum specifically specifies that the credit can be applied to pre-paid items.

Agents: You can solve the issue by adding the words “credit includes prepaids” in your addendum.

via Booth Escrow Newsletter.