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In the real estate world, the document that used to be called a settlement statement has evolved over time into what is now known as a closing disclosure. However, many still use the term, so you might come across it in the process of closing your mortgage loan. A settlement statement provides a breakdown of all the closing costs and credits involved in a real estate transaction or refinance — crucial for buyers to know so they can budget as wisely as possible. Here’s what to know.
A settlement statement is a document summarizing all costs owed by or credits due to the homebuyer and seller (or to the borrower in the case of a refinance). The document also includes the purchase price of the property, loan amount and other details. All of this serves to tell the buyer (or refinancer) how much money will be due at closing, and to whom. It also tells the seller how much their proceeds will be.
The settlement statement can be provided to the homebuyer and seller by the mortgage lender, a settlement agent, a title company or a real estate attorney.
If you got your mortgage prior to October 2015, you received a HUD-1 settlement statement. (HUD is the U.S. Department of Housing and Urban Development.) Today, most borrowers receive a similar document commonly called a closing disclosure, although it might still informally be referred to as a HUD-1 or settlement statement.
What happened in October 2015? That’s when the consumer-protection laws often known as TRID, or “Know Before You Owe,” were passed by Congress. As a result, the Consumer Financial Protection Bureau required the HUD-1 to be replaced by the more streamlined and less-confusing closing disclosure. But it serves the same purpose — to make sure the borrower understands exactly what they’re getting into financially.
Every real estate transaction requires a settlement statement of some kind. For residential purchases and sales it will likely be a closing disclosure, whereas some transactions may still get the HUD-1 or HUD-1A settlement statement.
There has been a move by regulators to streamline these statements, or to make them less complicated. — Mark Hamrick, Bankrate Senior Economic Analyst
Once you receive your statement, check it against your loan estimate to make sure there are no surprises. It’s crucial to review this document carefully to ensure all costs are accurate.
“While homebuyers might tend to focus on the final price of the property they’re buying, and for good reason, their due diligence should extend to disclosures, including those found in settlement statements,” says Mark Hamrick, Bankrate’s senior economic analyst. “Over the last decade or so, there has been a move by regulators to streamline these statements, or to make them appear less complicated. It is important that buyers and their representatives check the numbers to make sure they align, so that they know what they owe.”
A settlement statement outlines the expenses and credits that need to be paid by the homebuyer and seller (or borrower in the case of refinancing). Common fees listed on a settlement statement include:
This document summarizes all costs owed by or credits due to the homebuyer and seller in a real estate transaction. It includes the purchase price of the property, loan amount and many other details. Most borrowers today receive a closing disclosure, a more streamlined version of the former U.S. Department of Housing and Urban Development (HUD) settlement statement.
Several items are listed and organized within a settlement statement, including your loan amount, interest rate and terms, the property’s contract price, real estate taxes and agent commissions. The document will also detail lender-related fees and costs for things like title and escrow companies, home inspection and appraisal, homeowners insurance and private mortgage insurance (if applicable).
For all intents and purposes, yes. Prior to 2015, mortgage borrowers received a HUD-1 settlement statement from the U.S. Department of Housing and Urban Development. In October of that year Congress enacted legislation that streamlined the document to make it more consumer-friendly, and the settlement statement became what is now the closing disclosure.
Arrow Right Senior editor, Home Lending
