What is all this closing paperwork?
Understandably, real estate transactions involve a lot of forms and documents. A lot of money is changing hands — everything needs to be in perfect order.
As a new buyer or seller, the mountain of paperwork you receive (and have to sign) may seem intimidating. Always be sure to ask your real estate agent about anything you don’t understand as it’s always possible that there may be an error.
Let’s demystify one of those documents for you here. Take a look at these answers to settlement statements questions to help you understand its purpose.
1. What is a HUD-1 settlement statement?
The HUD-1 settlement statement is a standardized form that used to be included in nearly all real estate transactions. Since 2015, it has fallen out of use and now is used primarily for reverse mortgages and mortgage refinances.
The form details all the charges and credits to both the buyer and the seller during a real estate transaction.
2. What charges appear on the HUD-1?
On the back page, the HUD-1 includes itemized charges for both parties. The borrower’s charges appear in the left-hand column and the seller’s in the right. Note: buyers are always referred to as borrowers on the HUD-1 form even if there isn’t a loan.
The borrower’s charges include loan details and the buyer’s closing costs. These include:
- Loan origination fee
- Mortgage discount points
- Appraisal fees
- Credit report
- Prepaid interest
- Property taxes
- Title insurance
- Closing agent’s fees
The seller’s column is typically shorter and includes:
- Agent’s commission
- Mortgage pay-off information (if applicable)
- Any negotiated credits to the buyer (if applicable)
The front page lists the totals from the columns on the back as well as the amount due from the buyer and the amount due to the seller.
3. Is a settlement statement the same as a closing statement?
The terms settlement statement and closing statement can be used interchangeably. They both refer to closing documents provided to the buyer and seller in a real estate transaction.
The buyer typically receives two documents. These are the settlement statement from the lender regarding the loan details and the closing statement for the real estate transaction.
4. Is a closing disclosure the same as a settlement statement?
The closing disclosure is the document that replaced the HUD-1 statement in many real estate transactions on October 3, 2015.
A separate closing disclosure is prepared for the buyer and the seller. Each party is only provided with their respective statements. This is different than the HUD-1 which lists both party’s information on the same document and everybody walks away with the same information.
The buyer’s closing disclosure is a 5-page form detailing their closing costs and loan information. The seller’s closing disclosure is shorter and details the transaction and any fees the seller has agreed to pay.
5. Who prepares the HUD-1 settlement statement?
The standard HUD-1 form is provided by the U.S. Department of Housing and Urban Development. The Real Estate Settlement and Procedures Act (RESPA) requires that the form be used for reverse mortgages, mortgage refinances, and any mortgages for which the borrower applied before October 3, 2015.
Lenders prepare the document with all the pertinent details of the borrower’s loan. They must then provide this document to the borrower at least one day before closing to give them a chance to review it.
6. What can I deduct from the settlement statement?
Many people look at that column of numbers and wonder if they can use it to their advantage at tax time. Unfortunately, you can’t deduct most of it. You can only deduct mortgage interest and certain property taxes. If you itemize deductions, you can take these the year you buy (or sell) your home.
Help with HUD-1
The HUD-1 and other closing documents are designed to be as straightforward and simple to understand as possible. However, when you’re considering the several thousand dollars you have to pay, it’s only natural that you have a few questions.
Your real estate agent is an excellent resource for helping you understand the forms. Be sure to ask any questions you have. There’s always a possibility for error and carefully reviewing it with your agent can help catch any discrepancies.
How do you find an awesome real estate agent to support you as you sell your home? Contact us here at Clever. We’ll put you in touch with a top-notch agent in your area that will work for a flat fee of $3,000 or 1% of homes sold for more than $350,000.
As a Clever buyer, you could even be eligible for a $1,000 Home Buyer Rebate at closing in 40 states. Find out more today.