Prepaids

At closing insurance policies and loan interest will be paid in advance, these items make up what are generally known as prepaid charges:

Interim interest:
The interest due on the loan amount to cover the remaining days in the month of closing. At loan closing the funds for the loan amount are advanced for between 1 to 31 days before the accrual of interest begins for the first payment. The interest for these 'interim days' is collected in advance at closing.

Hazard (Homeowners') insurance policy premium:
The cost to buy the first year's insurance for the home being purchased or refinanced. The borrower obtains the policy.

Mortgage insurance premium (PMI for conventional loans or MIP for FHA loans):
The cost to buy the first year premium for mortgage insurance due to the mortgage insurer. FHA loans will typically finance the up-front premium. PMI companies have many different plans that include financed premiums and monthly only premiums. The lender obtains the policy.

VA funding fee:
For VA loans only, the charge by the Veterans Administration to defray the cost of the home loan guaranty program. The VA funding fee is usually expressed as a percentage of the loan amount and is usually financed into the loan amount.


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