Also looking into buying a disposable prepaid phone that WILL work.

Should list your county and state the home is in to get better directed answers regarding the handling of the SD but yes, the SD does have to be held in a sperate account along with any prepaid items.  

They changed trash billing in my area last fall to be prepaid a flat rate yearly and it is added to your property tax bill.

(This service is inexpensive if you subscribe to a pre paid legal service--I can give you a link to the one I use if you send me a PM and ask for it).

One of the contingencies is that I agree to pay up to 3.5% in closing costs and prepaid items.

I prepaid him every quarter for keeping Avon moved and gutters cleaned.  

I have it prepaid effectively so I’m never out of pocket for bills.

Use these next few months that you have pre-paid to search for quality work. 

I believe the important parts of this are 1) Paying cash2) Setting up an escrow account and funding it with the pre-paid repair costs. 

For a conventional loan, Fannie Mae guidelines say, "The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan"