Closing costs and prepaid expenses are both expenses that a buyer will need to pay when purchasing real estate, but they differ in their purpose and timing.
Closing costs are fees and charges associated with the actual closing of the real estate transaction. These costs are typically paid at the time of closing and can include fees such as attorney fees, title search fees, appraisal fees, recording fees, and loan origination fees. The amount of closing costs can vary depending on the location of the property, the purchase price, and other factors.
Prepaid expenses, on the other hand, are costs that are paid in advance by the buyer and are typically associated with ongoing costs of homeownership. These expenses can include property taxes, homeowners insurance, and mortgage interest. Prepaid expenses are paid upfront at the time of closing, and are typically placed in an escrow account that is managed by the mortgage lender. The lender will then use the funds in the escrow account to pay the ongoing expenses as they become due.
In summary, closing costs are fees associated with the actual closing of the real estate transaction, while prepaid expenses are costs that are paid in advance to cover ongoing expenses of homeownership.
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