Pre-Paid Amounts Required By Lenders

When you purchase or refinance a home, some expenses are customary to pay in part or in full at closing. These are called "pre-paids" and are collected on the day your purchase or refinance is final.

Pre-paid costs required at closing include:

• Interest — If your loan is finalized before the last day of the month, at closing you will pre-pay interest on the loan for the time between the day the loan funds and the first day of the next month.
• Homeowners' Insurance Premium — One year’s premium, for insurance coverage that protects the lender and you if the property is damaged, is paid at the loan closing.
• Private Mortgage Insurance — Typically, if you make a down payment of less than 20 %, lenders require Private Mortgage Insurance (PMI) to protect themselves in the unfortunate event that a borrower does not repay the loan.
• Reserve or Escrow or Impound Account — This account is set up and held in trust for you by the lender. It may be used to pay for property taxes, homeowners' insurance, flood insurance and PMI. Usually, at loan closing enough money to pay for at least 2 month's worth of these items is deposited in the account. Your lender pays these bills for you when they are due. Your monthly mortgage payment includes money that is deposited into this account. Not all loans require a reserve account, but it aids budgeting and reduces bill-paying for borrowers who have them.

At Countrywide Bank’s Full Spectrum Lending Division, a Home Loan Consultant is always ready to explain closing costs in more details. Call 1-800-909-8217 for a FREE no-obligation consultation.