good topic

keep giving the gift of obligation

Yes, this is a "pre-paid" item, however, when talking with buyers, and they want to know what it's going to take to close on the loan, everything is grouped together as "closing costs" because they can't close without the costs being paid... just like home owners insurance and the rest of the escrow account being set up.

Jeff - Thanks for stopping by.

Donna - It could be a case of semantics; but sometimes, getting technical with clients is necessary.

Me personally the seller pays everything closing cost and pre paids. It is easier for me to close everyone with a six percent seller concession loan and let the buyer get his or her earnest money back at closing. This practice makes it easy  and simple at closing.

Let me change that, there are some situations that the seller can only pay three percent. So I do modify the terms when this comes up. Congrats on the feature

Mystery Person - Thanks for your input. And the "featured" notice. I didn't even realize it.

Jeff - Glad there was something here you could use in your business.

Ilyce,

Good explanation for buyers and agents what per diem really is. When it's only a few day's worth of interest, no one notices it. But when it's a bigger sum, oh yes, it suddenly stands out. Technically it's an interest charge, yet to buyers everything they bring to the settlement table is a closing cost.

Ilyce: I tell my buyers that the cash necessary to close on their home consists of three parts:  down payment, closing costs, and prepaids.  Then I break it down. 

The down payment lowers your initial mortgage balance.  If you wish, and are able... if your credit allows, you may purchase a home with little, or even no down payment.

The closing costs... are any costs having to do with obtaining financing... like credit check, appraisal, document preparation, perhaps an escrow fee, and so forth.

The third part is "pre-paids."  They are just as the name implies.  They are amounts that you, the buyer, pre-pay.  Pre-paid interest simply pays for the interest on the loan for the remainder of the days of the month left in the month in which you close.  Pre-paid insurance... pays in advance for a year's home owner's insurance.  If you have an escrow account as part of your loan, the money used in setting up your escrow account is your money... you are simply paying it in advance.

Now... I don't break this down for all my buyers, perhaps not even half of them... because, as you suggested, all they usually want to know when they use the phrase "closing costs" is what amount they will need... to close.  

By the way... I do not use the words "per diem."  I think it sounds too much like industry "lingo."      Karen Anne

Ilyce, this is a nice way to break it down and show consumers exactly what "prepaid item" means on the GFE.  Good job.

I think explaining the HUD 1 would be an excellent series.  I'm always amazed at real estate professionals who don't understand fully this very important document. 

Congratulations on the feature, I use per diam some of the time as it makes it clearer to the borrower.

I wish we had a series on understanding the HUD too. I only started trying to learn it recently.

Like mentioned above, it is lumped in as a closing cost, but technically you are more correct.

Great explination. I will incorporate that in my estimated closing cost I go over with my buyers.

Esko - Thanks!

Karen Anne - That's a great breakdown. I usuallu call it what it is: pre-paid interest.

Ilyce:  Selling new homes is one of my specialties.  In Fort Worth, our closings are not "round table closings" but are done with an escrow agent at the title company.  Although most Realtors usually attend their closings on resale properties, strangely enough, the great majority of them do not attend closings at the builder's title company when it's a new home closing.

I think they are missing a great opportunity for referrals from the buyer.  This is a time of great stress, and for a Realtor to no attend... is simply foolish.

Kris - Thanks.

Chris and Missy - Maybe I'll try to start one, if no one beats me to it. That's a good idea.

Thanks for clarifying a fuzzy area for buyers, sellers and new agents. I do the same as Karen Stone and explain that theres three parts it sure saves a lot of confusion at closing. 

Ronald - Thanks for that.

Diane - That's great! See what Karen Anne says above, too.

Danny - It sure does. We just need to be more proactive in educating our buyers.

Danny - It sure does. We just need to be more proactive in educating our buyers.

Karen Anne - That's more than foolish; I'd say ridiculous, especially now. Thanks for coming back.