How are closing costs categorized?

Closing costs are categorized into non-recurring costs and pre-paid items primarily to help buyers and sellers understand the nature and timing of these expenses. Non-recurring costs are those that are incurred one time during the closing process, such as title insurance, appraisal fees, and recording fees. On the other hand, pre-paid items include expenses that will recur, such as property taxes or homeowners' insurance premiums that need to be paid in advance at closing. This categorization helps in creating a clear distinction between costs that are single-event expenditures and those that will require ongoing payments throughout the ownership of the property, making it easier for buyers and sellers to anticipate their financial obligations.

Understanding this division is essential for both buyers and agents in planning and budgeting for the home purchase process.