HUD-1 Settlement Statement

The Settlement Statement is required by federal law, and is one of the most important documents you will handle. Its purpose is to itemize the services provided and list the charges to the buyer and the seller. The form is filled out by the settlement agent who conducts the closing. Both the buyer and seller must sign it.

HUD-1 Settlement Statement: Chart 4

Let’s take a look at the various closing costs. The buyer and seller may jointly decide who will pay each portion of the closing costs (this needs to be specified in the sales contract). While it is possible to have an agreement in which only one party pays all closing costs, usually these costs are shared by both parties. Some of the costs listed on the HUD-1 Settlement Sheet are described below, along with the line number for each cost. (Refer to the form on the previous page.)

Fees are typically paid to the lender at closing. The following is a brief description of the fees:

Loan origination fee (Line 801). The loan origination fee covers the administrative costs of processing the loan. It may be described as a percentage of the loan (for example, one percent of the mortgage amount).

Loan discount points (Line 802). These points are charged by the lender in order to make a profit on the loan. Each point equals one percent of the mortgage amount. In some cases, you may be able to pay additional points upfront to reduce your mortgage interest rate.

Appraisal fee (Line 803). An appraisal is an estimate of the value of the property. A professional appraiser will judge the value of the house based on prices that have been recently paid for similar homes in the same area. The lender uses the appraisal to determine whether the value of the property is sufficient to sell the property if you fail to repay your loan. There is an appraisal fee that you may pay at the time you apply for the mortgage. It may appear on the settlement sheet as "POC," or "paid outside closing."

Credit report fee (Line 804). The credit report fee covers the cost of the credit report that the lender used to decide if you are responsible about paying your bills. As with the appraisal fee, you probably paid this fee when you applied for the mortgage.

Assumption fee (Line 807). This is a processing fee you pay if you take over the payments on the seller's existing loan.

The lender may require you to prepay some or all of the following items at the time of closing.

Interest (Line 901). You will probably have to pay the interest on the mortgage from the date of closing to the date of the first monthly payment. Because you will not pay your first mortgage payment for at least a month, you will be charged for the interest that accumulates during this time. If your closing date is near to the end of the month, the cost will be less than if your closing is at the beginning of the month. In other words, you begin to pay interest from the day you close on your house.

Mortgage insurance premium (Line 902). The lender may require you to pay two months to one year's premium at the closing. You may want to ask your lender about private mortgage insurance programs that do not require an entire year’s premium at closing. After the closing, the premium will be included in your monthly mortgage payment.

Property insurance premium (Line 903). You may be expected to pay the first year's premium at closing. If you have already paid for such a policy, be sure to bring your binder to the meeting.

Escrow accounts or reserves. (Lines 1000-1008) In most instances, the lender will pay the property taxes, mortgage insurance, and hazard insurance on your behalf. If this is the case, you will need to give the lender money (called a reserve) that will be set aside for these expenses. The amount that you are required to keep in reserve may be equal to one month’s payments, or more, depending on the guidelines your lender follows.

Title charges. (Lines 1100-1113) These are charges that must be paid to companies or individuals other than the lender. They may include:

• the closing fee;
• title search;
• title insurance premium;
• fees for preparing documents; and
• attorney fees (for legal services provided to the lender).

Any fees you incur for your own real estate attorney are not part of the settlement procedures.

Recording and transfer fees. (Lines 1200-1205) Most states impose a tax on the transfer of property and charge a fee for recording the purchase documents.

Additional charges. (Lines 1300-1305) These charges include the surveyor's fees, charges for termite and other pest infestation inspections, and all other inspections required by the lender.

Cost of repairs. (Lines 104-105) It is important to list the cost of any property repairs that you will pay. These costs will be included in the total amount of money you have spent to acquire the house.

Adjustments. (Lines 210-219) At the closing, you will also look at items paid for by the seller in advance and any items that the seller still needs to pay for. The most common expense will be property taxes. Your responsibility for these taxes begins at the closing. If the seller has already paid taxes beyond the date of closing, you will need to reimburse him or her. If taxes are owed for any period of time prior to the closing, this amount will be subtracted from your settlement payment.

The bottom line is simply an accounting of income and expenses related to buying the house. Your income is a blending of the money you have available to put toward the purchase. This includes the amount of the loan, your deposit, down payment, and any grants or gifts you receive.

The expense side of the settlement sheet totals the various costs of purchasing the house. This list includes the sale price of the house, settlement charges, attorney’s fees, the amount to be paid for repairs or rehabilitation, property taxes paid in advance, and escrow funds for maintenance.