What Is Prepaids?
Prepaids are amounts paid at closing for expenses that belong to the period after you own the home - typically mortgage interest from the closing date to the end of the month, the first year of homeowners insurance, and initial deposits that fund your escrow account.
Example
Closing on the 20th of a 30-day month with a $300,000 loan at 6.5% means about 11 days of prepaid interest - roughly $588 - is collected at closing.
Why It Matters
Prepaids aren't lender fees - they're your own future costs paid in advance - but they still add to the cash you need at closing.