When are prepaid expenses typically calculated?

Prepaid expenses are typically calculated before the closing date of a real estate transaction. This pre-calculation ensures that all parties involved in the transaction are aware of the financial obligations that need to be met prior to closing. It includes items such as homeowner’s insurance, property taxes, and mortgage interest that are paid in advance. By determining these expenses ahead of time, it allows for accurate disclosures on the Closing Disclosure form, ensuring that all parties are informed about the amounts due at closing.

Calculating these expenses before closing helps to ensure that the buyer has sufficient funds readily available and avoids any surprises at the closing table. This step is crucial in facilitating a smooth transaction and ensuring that funds are appropriately disbursed to cover these costs.