Understanding the HUD-1 Settlement Statement

The Role of the HUD-1 Settlement Statement

The HUD-1 Settlement Statement is a comprehensive form that outlines the final financial terms and conditions of a real estate transaction. It provides a detailed account of all charges imposed on borrowers and sellers during the settlement process. This document is not only a requirement by law but also serves as a critical tool for consumers to understand the costs associated with their real estate transaction.

Key Sections of the HUD-1 Settlement Statement

The HUD-1 form is divided into several sections, each detailing different aspects of the transaction. Here's a breakdown of some of the most significant sections:

Sections A through I: General Information

These sections provide basic information about the loan, including personal details such as names, addresses, the date of the transaction, and the location of the property. It's essential to verify that all the information listed is complete and accurate.

Section J: Summary of Borrower's Transaction

This section is dedicated to the borrower's financial details, including:

• Gross Amount Due from Borrower: This includes the purchase price, settlement charges, prepaid taxes, and additional items such as appliances.
• Amounts Paid by or on Behalf of Borrower: This covers deposits, financing, and any credits due to the borrower, like unpaid taxes or repair costs.
• Cash at Settlement from/to Borrower: This is the actual cash amount the borrower needs to bring to the settlement.

Section J is a critical part of the HUD-1 as it summarizes the borrower's financial responsibilities and any credits or charges that may affect the final amount due.

Section K: Summary of Seller's Transaction

Section K outlines the seller's financial details, including the gross amount due to the seller and adjustments for items such as past due taxes or prepaid taxes.

Section L: Settlement Charges

This section provides a detailed breakdown of the costs associated with the transaction, including:

• Total Sales/Broker’s Commission: The total real estate broker commission charges.
• Items Payable in Connection with Loan: Fees related to the home loan, such as origination, appraisal, and credit report fees.
• Items Required by Lender to Be Paid in Advance: Pre-settlement payments like pre-paid interest, mortgage insurance, and home insurance.
• Reserves Deposited with Lender: Escrow items for future expenses like property taxes, with legal limits on the amount required.
• Title Charges: Costs for legally changing property ownership, including closing, title examination, and attorney's fees.
• Government Recording and Transfer Charges: Fees for recording the deed and transferring ownership at the city, county, or state level.
• Additional Settlement Charges: Any other settlement charges not previously listed, such as home inspections or warranties.
• Total Settlement Charges: The sum of lines 700-1300, representing the total charges for the settlement.

Accuracy in these sections is paramount. It's important to review all figures and ask questions if anything is unclear.

The Good Faith Estimate Connection

In addition to the HUD-1, lenders are required to provide borrowers with a Good Faith Estimate (GFE) of the expected charges. The GFE should be given early in the loan application process, and the HUD-1 should be provided at least one day before closing. This allows borrowers to compare the estimated costs with the final charges.

Interesting Stats and Data

While the HUD-1 Settlement Statement is a familiar document in real estate transactions, there are some interesting statistics related to its usage and the broader context of home buying:

• According to the National Association of Realtors, 5.64 million existing homes were sold in 2020. Each of these transactions likely involved a HUD-1 Settlement Statement. National Association of Realtors
• The Consumer Financial Protection Bureau reported that in 2015, they implemented the "Know Before You Owe" mortgage disclosure rule, which replaced the HUD-1 and GFE with the Closing Disclosure for most mortgage loans. However, the HUD-1 is still used for certain types of loans. Consumer Financial Protection Bureau

Understanding the HUD-1 Settlement Statement is crucial for a transparent and fair real estate transaction. By familiarizing yourself with the various sections and ensuring all information is accurate, you can navigate the closing process with confidence.