Closing costs and prepaid expenses are basically one and the same. 3% is the standard that most banks are willing to pay. Check with your lender to get a HUD statement that will provide you an exact accounting of what the costs are exactly.

Prepaid expenses are anything you pay before closing such as the cost of a home inspection, any fees paid to lender for credit reports, etc., cost of appraisal if paid by you, or the 1st year's insurance premium. "not to exceed" is normal language, but their language may get them out of "prepaid" expenses, and hold them just to costs at the closing table. Hope that helps....check out my web site! Thanks, Beth Campbell