HUD-1 Settlement Statement
The closing of a real estate transaction can often be confusing and intimidating for buyers and sellers. The closing venue is usually an unfamiliar environment, with strangers who seem to be so very familiar with everything that you are not. On top of it all, you are dealing with the transfer of hundreds of thousands of dollars or its equivalent in real estate, and are being presented with endless unfamiliar documents to sign.
It doesn’t have to be this way. All that is required is a simple explanation of what the documents are plus some preparation, and a closing will be a less daunting experience.
This post is the first in a series of posts that takes a look at these documents to help you to prepare for your closing event.
The first document is the HUD-1 Settlement Statement, usually referred to as the HUD-1.
This Department of Housing and Urban Development (HUD) document is a Federal Real Estate Settlement and Procedures Act (RESPA) required statement that must be used when a federally related mortgage is involved. However, the statement is also traditionally used in cash closings, to inform buyer and seller of how their transaction costs have been accounted for. Examples of these costs are:
- Items that the lender wants the borrower to pay in advance
- Tax and insurance escrow prepayments
- Title agent charges
- Title insurance
- State transfer taxes
- Recording charges
- Inspections and survey charges
- Non-included costs paid out of closing
- Prorated adjustments between buyer and seller.
Please see our below blog posts that explain these items and how they are calculated.
Finally, the HUD-1 statement shows what the net amounts are to be received or paid out as final settlement of the transaction. The statement must be received by both parties one day before closing.
Go through the HUD-1 with you real estate agent or attorney before the closing, and don’t assume that the closing agent is always correct. It is more often than not that small corrections need to be made before both parties complete the mandatory signing of this statement.
Please continue reading our next post in our series about documents to help you to prepare for your closing event, in which we will explain the Truth In Lending Statement (TIL).
Hopefully this information is helpful to buyers and sellers who want to know what what to expect at a real estate closing.
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Marius J Smook – Licensed Real Estate Eco-Broker, LEED AP for HOMES, Home Energy Rater.