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.
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.
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.