Will I have to pay for closing costs and prepaid items out of pocket?

Not necessarily. This can be handled one of two ways; Either the closing costs and pre-paids can be paid out of pocket or they can be included in the sale price and be specified as closing costs to be paid by the seller. It is not possible to finance these items separately from the home purchase. However, the seller is allowed to contribute toward your closing costs. When the seller pays the buyers closing costs and prepaids this is referred to as seller paid concessions. Some loan programs limit the amount the seller is allowed to pay. Your mortgage advisor will be able to give you the specifics that apply to your situation.