What are the two categories of closing costs?

The correct choice identifies closing costs in terms of non-recurring and prepaid expenses. Non-recurring costs are related to the one-time expenses incurred at closing, such as title insurance, attorney fees, and recording fees. These costs do not repeat in future transactions and are specific to the transaction being completed.

On the other hand, prepaid costs refer to expenses that might be paid upfront at closing but relate to ongoing costs, such as property taxes or homeowners insurance. These are typically estimated and collected for a prorated period in advance to ensure that the buyer does not fall behind on these obligations after the purchase is closed.

By categorizing closing costs in this way, it becomes easier for buyers and sellers to understand their financial obligations during the closing process, allowing for a more transparent overview of what expenses to expect and how they will impact their financial position. This distinction also aids real estate professionals in effectively advising clients on what to anticipate during the closing of a property sale.