Which item is generally considered a prepaid item in closing costs?

• A. Recording fees.
• B. Origination charges.
• C. Credit checks.
• D. Insurance premiums paid in advance for homeowners insurance and property taxes.

Answer: (D)

Prepaid items are costs paid at closing that cover expenses for future periods rather than services performed at the closing. Insurance premiums paid in advance for homeowners insurance and property taxes fit this, because lenders typically require you to fund these for the coming year and may hold them in escrow or treat them as prepaid amounts so coverage and tax payments start right after closing. In contrast, recording fees and origination charges are one-time fees for processing or recording the loan, and a credit check is a one-time cost tied to evaluating your credit; neither provides coverage for future periods, so they aren’t prepaid items.