Prorations are closing adjustments that divide certain ongoing property expenses or credits between buyer and seller based on timing.
Prorations are closing adjustments that divide certain ongoing property expenses or credits between buyer and seller based on timing.
Prorations matter because closing rarely happens exactly at the boundary between billing periods. Property taxes, association dues, or other recurring property costs may need to be divided fairly based on who owned the property during which period.
They also matter because borrowers can misread the final closing figures if they do not realize some amounts are timing adjustments rather than new lender charges.
This page matters because prorations are one of the easiest closing figures to misunderstand. Borrowers often assume every line item is either a fee or a lender requirement, when some items are simply calendar-based allocations between the parties.
Borrowers usually encounter prorations in the closing-figure stage, especially on settlement documentation and the Closing Disclosure.
The term becomes practical when the parties are finalizing who owes what around the Closing Date.
It becomes even more practical when the borrower is reconciling why the amount due changed between early estimates and final settlement figures. Some of that movement can come from timing adjustments rather than from a new fee being added.
A home closes in the middle of a property-tax period. The final statement adjusts the figures so buyer and seller each carry the portion tied to their period of ownership. Those timing adjustments are prorations.
Prorations differ from Prepaid Items because prepaid items fund future obligations after closing, while prorations allocate current-period expenses between parties.
They also differ from Closing Costs. Some borrowers lump everything at closing into one category, but prorations are timing-based allocations rather than ordinary loan or title fees.
They also differ from Seller Concessions. Prorations divide expenses based on ownership timing, while seller concessions are negotiated seller contributions toward the buyer’s costs.