How to Read a HUD-1 Settlement Statement

The HUD-1 Settlement Statement is a standardized document that itemizes all charges and credits for both the buyer and seller in a real estate transaction. Its primary purpose is to provide transparency and fairness in the settlement process, as mandated by the Real Estate Settlement Procedures Act (RESPA). This form offers a comprehensive breakdown of financial aspects, including the sale price, loan amount, commissions, taxes, and insurance. While largely replaced by the Closing Disclosure form for most transactions under the TILA-RESPA Integrated Disclosure (TRID) rule in October 2015, the HUD-1 is still used for specific transaction types, such as reverse mortgages, certain seller-financed deals, and some commercial transactions.

Overview of the HUD-1 Statement

The HUD-1 statement consists of multiple pages, presenting a clear financial picture of the real estate closing. The first page provides general reference and identification information about the parties involved, the mortgage, and the closing details. Sections A through I at the top of the first page include basic information like the settlement date, settlement agent’s name, and property location. The bottom portion of Page 1 is divided into two columns: Section J, which summarizes the buyer’s (borrower’s) transaction, and Section K, which summarizes the seller’s transaction. Page 2 of the HUD-1 statement, specifically Section L, itemizes most of the closing costs for both the buyer and seller, with separate columns for each party.

Buyer’s Financial Details

Section J: Summary of Borrower’s Transaction presents the buyer’s financial details. Line numbers in the 100-series (e.g., 103, 104, 105) detail the gross amount due from the buyer, including their specific settlement charges carried over from Section L. Credits that reduce the cash the buyer must bring to closing are found in the 200-series line items. For instance, the earnest money deposit appears on line 201, while the face amount of the first purchase money loan is listed on line 202. Money owed to the buyer by the seller at closing, such as prorated taxes or seller-paid closing costs, are also shown in the 200-series, from lines 203 through 219. The culmination of these charges and credits leads to the buyer’s “bottom line,” which is the final cash due at settlement or cash to borrower, calculated in the 300-series.

Seller’s Financial Details

Section K: Summary of Seller’s Transaction presents the seller’s financial details, with 400-series line numbers (e.g., 420) representing the gross amount due to the seller, including reimbursements for prepaid items. Reductions in the amount due to the seller are found in the 500-series line items. These include excess deposits (e.g., line 501 for earnest money), settlement charges paid by the seller (line 502, carried over from Section L on Page 2), and existing loan payoffs (lines 508, 509, and 513-519). These calculations determine the seller’s final cash to seller or cash due from seller at closing.

Understanding Specific Transaction Costs

Loan origination fees are charges from the lender for processing, underwriting, and approving the mortgage loan. These fees can range from 0.5% to 1% of the loan amount and are often negotiable.

Points are fees paid to the lender; origination points compensate for loan processing, while discount points allow borrowers to reduce their interest rate by prepaying some interest. One point equals 1% of the mortgage loan amount.

An appraisal fee is charged by a licensed appraiser to estimate the property’s market value, which lenders require to confirm the property’s worth before providing a loan. These fees range from $500 to $800.

A credit report fee covers the cost of obtaining the borrower’s credit report from major credit bureaus, generally less than $30.

Title insurance includes two main types: lender’s and owner’s. Lender’s title insurance is required by the lender and protects their investment against title issues, covering the loan amount. Owner’s title insurance, while often optional, protects the homeowner from financial loss due to defects in the property’s title that predate the purchase, covering the property’s full value.

Escrow fees, also known as settlement fees, are administrative charges by the settlement agent or title company for overseeing and facilitating the real estate transaction. These fees cover services like preparing legal documents, coordinating signings, and disbursing funds.

Recording fees are charges from government agencies, usually at the county level, for officially registering the transfer of property ownership in public records. These fees can range from a few dollars to hundreds, varying by location and document size.

Transfer taxes, also called deed stamps or documentary stamp taxes, are transaction fees imposed by state and local governments on the transfer of property title. These taxes are usually a percentage of the property’s sale price or appraised value and can range from 0.01% to over 4%. While often paid by the seller, who pays can vary by local convention.

Real estate commissions are professional service fees paid to real estate agents or brokers for their services in facilitating the sale or purchase of property. These are a pre-negotiated percentage of the sale price, often ranging from 4% to 7%. Historically, sellers paid commissions for both agents, but recent changes mean buyers may now negotiate directly with their agents for compensation.

Prorated property taxes and homeowners association (HOA) dues involve dividing these expenses fairly between the buyer and seller based on their respective ownership periods. For instance, if property taxes are paid in arrears, the seller will be charged for their portion up to the closing date, and the buyer will be responsible thereafter.

Prepaid items are expenses paid at closing for future obligations, such as property taxes, homeowners insurance premiums, and mortgage interest. These amounts are often placed into an escrow account to cover upcoming bills.

Final Settlement and Disbursement

The gross amount due from the buyer (Line 120) is carried forward to line 301, while total amounts paid by or on behalf of the buyer (Line 220) are carried to line 302. Similarly, the total credits due to the seller (Line 420) are summarized, and the seller’s total charges (Line 502, carried over from Line 1400 on Page 2) are deducted.