What Is a Settlement Statement? Reviewing Your Closing Costs

A settlement statement serves as a comprehensive financial record of a real estate transaction. It provides a detailed summary of all money exchanged, including costs, credits, and adjustments for both the buyer and seller. This document ensures transparency, outlining exactly what each party pays and receives at the conclusion of the property transfer. It acts as a final accounting, crucial for understanding the financial specifics of a home purchase or sale.

Key Information Found on a Settlement Statement

A settlement statement begins by identifying basic transaction details, such as the property address, closing date, and the names of the buyer(s) and seller(s). It also includes relevant loan information, such as the loan amount, interest rate, and term if the buyer is obtaining financing.

The statement itemizes various costs and charges associated with the transaction. Lender fees often include origination fees, which compensate the lender for processing the loan, and discount points, which are upfront payments made to reduce the interest rate. Additional lender-related fees can cover appraisals, credit reports, and flood determination services.

Title and escrow charges are another category of expenses. These encompass title insurance premiums, which protect both the lender and the owner against future claims on the property’s title. Other fees in this category may include escrow fees, closing fees paid to the settlement agent, recording fees for officially registering the deed and mortgage, and notary fees for document authentication.

Prepaid items represent expenses paid at closing that cover periods extending beyond the closing date. Common examples include prorated property taxes, initial homeowner’s insurance premiums, and per diem mortgage interest covering the days between closing and the first mortgage payment. These amounts are collected to establish escrow accounts or cover immediate future obligations.

Government fees often appear on the statement, encompassing recording fees charged by the county or municipality to register the property transfer and mortgage documents. Transfer taxes, also known as conveyance fees, are another common government charge levied when property ownership changes hands. Real estate broker commissions are also listed, typically paid by the seller from the sales proceeds, often ranging from 5% to 6% of the home’s sale price.

Beyond costs, the settlement statement also details various credits. The earnest money deposit, paid by the buyer at the time of the offer, is credited back to the buyer at closing. Any agreed-upon seller credits, such as contributions towards the buyer’s closing costs or repair concessions, are also reflected as credits to the buyer. The loan proceeds, representing the amount of money the lender is providing for the home purchase, constitute a significant credit to the buyer.

The settlement statement balances all these itemized costs and credits. It calculates the final amount due from the buyer at closing or the net proceeds due to the seller. This summary provides a clear reconciliation of all financial aspects.

The Closing Disclosure Form

The Closing Disclosure (CD) form is the standard settlement statement for most residential real estate transactions involving a mortgage. It replaced earlier forms like the HUD-1 Settlement Statement following the TILA-RESPA Integrated Disclosure (TRID) rule, which took effect in October 2015. This rule aimed to simplify and combine various disclosures, providing consumers with clearer information about their mortgage loan terms and closing costs. The lender is responsible for issuing the Closing Disclosure to the borrower.

The CD provides clarity and transparency, ensuring consumers understand the financial commitments of their mortgage. It details the final terms of the loan and all associated costs, allowing borrowers to compare final figures against initial estimates.

The Closing Disclosure is a standardized five-page form. Page one provides an overview, including transaction details, finalized loan terms like the loan amount and interest rate, and a summary of projected payments and total closing costs. It also indicates whether the loan has features like a prepayment penalty.

Page two offers a detailed breakdown of both loan costs and other costs. Loan costs include fees such as origination charges, appraisal fees, and credit report fees. Other costs encompass items like title service fees, recording fees, and prepaid items for property taxes and homeowner’s insurance. This page distinguishes between services the borrower could shop for and those they could not.

Page three of the CD summarizes the transactions for both the borrower and the seller, detailing what each party pays and receives. It explicitly calculates the “Cash to Close,” which is the exact amount the borrower needs to bring to the closing table.

Page four provides additional information about the loan’s characteristics and conditions. This includes details on whether the loan can be assumed by another party, if there is a demand feature allowing the lender to call the loan due early, and policies regarding late payments or partial payments. It also outlines specific information about the escrow account, if one is established.

Page five contains loan calculations, such as the total interest percentage and total payments over the loan’s life. It also includes other important disclosures, such as confirmation of property appraisal receipt, and contact information for all parties involved in the transaction. Lenders are required to provide the Closing Disclosure to the consumer at least three business days before the scheduled closing date, allowing time to review the document and ask questions.

Reviewing Your Closing Disclosure

Upon receiving your Closing Disclosure, compare it with the initial Loan Estimate. This helps identify any changes in loan terms or costs, ensuring the final terms align with initial expectations.

Certain fees on the Closing Disclosure have tolerance limits, meaning they cannot increase beyond a specified amount from the Loan Estimate unless there’s a valid change in circumstances. Some fees, like the lender’s origination charge and transfer taxes, have “zero tolerance,” meaning they cannot increase. Other fees, such as those for third-party services you were allowed to shop for (like title services or recording fees), have a “10% cumulative tolerance,” meaning their total collective cost can increase by up to 10% from the estimate. Prepaid interest, property insurance premiums, and amounts placed into an escrow account generally have no tolerance limit.

Scrutinize the loan terms to verify the loan amount, interest rate, loan type, and term are as agreed upon. Confirm that the cash to close amount matches your Loan Estimate, accounting for any legitimate changes. Review all itemized fees and charges for accuracy.

Examine the escrow account details, if applicable, to ensure the initial deposit amounts for property taxes and insurance are correct. Verify that all personal information, property details, and contact information for all parties involved are accurate.

If you discover any discrepancies, errors, or have questions, contact your lender or settlement agent immediately. Addressing these issues before closing is important, as some changes might require a new three-business-day review period if they are substantial, such as an increase in the annual percentage rate (APR) beyond a certain threshold, a change in the loan product, or the addition of a prepayment penalty.