What Is a Settlement Sheet in Real Estate?

A settlement sheet, now predominantly known as the Closing Disclosure, is a comprehensive financial document detailing all monetary transactions involved in a real estate closing. This document is central to understanding the financial obligations and distributions for both buyers and sellers, ensuring transparency in what is often the largest financial transaction for many individuals. It itemizes every cost and credit associated with the property transfer, providing a clear summary of the transaction.

Understanding the Settlement Sheet’s Purpose

The primary function of the Closing Disclosure is to provide a complete financial accounting of a real estate transaction. It outlines all charges, credits, and payments made by the buyer and seller, leading to the final cash to close amount.

Historically, this document was known as the HUD-1 Settlement Statement. In 2015, the Consumer Financial Protection Bureau (CFPB) implemented the TRID rule, which replaced the HUD-1 with the Closing Disclosure for most residential mortgage transactions. The Closing Disclosure serves the same fundamental purpose as the HUD-1, offering a detailed breakdown of all financial aspects of the transaction. A closing agent, such as a title company or escrow officer, typically prepares this document, though the lender is responsible for providing it to the borrower.

Key Components of the Settlement Sheet

The Closing Disclosure is a multi-page document that categorizes various expenses and financial adjustments. One section details loan costs, which are fees charged by the lender for originating and processing the mortgage. These can include origination fees, appraisal fees, credit report fees, flood determination fees, and fees for tax monitoring services.

Another section covers “Other Costs,” encompassing services required for the transaction but not directly tied to the loan itself. These include title insurance fees, which protect against ownership issues, and escrow fees for the handling of funds and documents. Recording fees, paid to government agencies, and transfer taxes, imposed by state or local governments, are also listed here.

Prepaid items represent expenses that buyers pay at closing for future periods. These often include homeowners insurance premiums, property taxes, and prepaid interest on the new mortgage loan. The Closing Disclosure outlines the initial deposit amounts for the escrow account, which holds funds for future property tax and insurance payments. The document also provides a comprehensive summary of the transaction, detailing the total debits and credits for both the buyer and the seller, and calculates the final cash to close.

Analyzing Buyer and Seller Charges

The Closing Disclosure clearly delineates which party is responsible for specific charges and credits. Buyers typically incur costs directly related to their mortgage loan, such as loan origination fees, appraisal fees, credit report fees, and the cost of the lender’s title insurance policy. Buyer closing costs commonly range from 2% to 5% of the home’s purchase price or loan amount.

Sellers generally cover costs associated with transferring ownership and facilitating the sale. These often include real estate agent commissions, the owner’s title insurance policy, transfer taxes, and their portion of prorated property taxes and homeowners association (HOA) fees. Seller closing costs can range from 6% to 10% of the home’s sale price.

Prorations are a key aspect of the financial breakdown, ensuring that expenses like property taxes and HOA fees are divided fairly between the buyer and seller based on their respective periods of ownership within a given billing cycle. For instance, if property taxes are paid annually and the closing occurs mid-year, the seller will be responsible for the portion of taxes up to the closing date, and the buyer will be responsible for the remainder of the year. These adjustments are precisely calculated and displayed on the Closing Disclosure, reflecting credits to one party and debits to the other.

Reviewing and Finalizing the Document

Reviewing the Closing Disclosure is a step before finalizing a real estate transaction. Borrowers are legally entitled to receive the Closing Disclosure at least three business days before the scheduled closing date. This three-day period, which includes Saturdays but not Sundays or federal holidays, provides an opportunity to examine all figures and terms. It is advisable to compare the Closing Disclosure with the initial Loan Estimate to identify any discrepancies in fees or loan terms.

During this review period, it is important to check for accuracy in names, addresses, loan amounts, interest rates, and all listed fees. Any inconsistencies, such as unexpected charges, miscalculated prorations, or changes in the annual percentage rate (APR), should be brought to the attention of the lender or closing agent. While minor changes might not require a new three-day waiting period, significant alterations, such as a change in the loan product or the addition of a prepayment penalty, will necessitate a revised Closing Disclosure and a new three-day review period. The finalization process involves signing the document, which signifies agreement and understanding of the terms and costs outlined.