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Understanding the HUD-1 Settlement Statement

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If you’re getting ready to close on a mortgage, you’ll typically review a closing disclosure. However, if you’re taking out a home equity line of credit (HELOC), a mortgage for a manufactured home that is not attached to real estate or a reverse mortgage, you’ll need to review a HUD-1 settlement statement before you head to the closing table.

This document summarizes the final details of the loan paperwork. Understanding the HUD-1 settlement statement will help you avoid errors that could cost you time or money.

What is a HUD-1 settlement statement?

The Department of Housing and Urban Development (HUD) requires that all banks provide a HUD-1 settlement statement (also called a settlement statement) to people taking out HELOCs, reverse mortgages or mortgages for manufactured homes that aren’t attached to real estate.

This statement details every charge associated with the loan. It also explains who’s on the hook for each charge — buyer or seller. Besides charges, the settlement statement spells out whether you’ll receive any credits for having paid in advance for things like taxes, insurance or deposits.

Types of loans that require a HUD-1 settlement statement

We’ll briefly explain the types of loans that are associated with the HUD-1 settlement statement before we dive into the form itself.

HELOCs

A HELOC is a mortgage that works much like a credit card. You can borrow as much as you need up to your maximum loan amount, then pay it down to zero as many times as necessary during a set draw period that usually ends after 10 years.

After the draw period is over, you pay the remaining balance in fixed payments until it is paid in full.

Reverse mortgages

A reverse mortgage is a specialized type of mortgage for homeowners that are 62 or older. Rather than making payments like a traditional mortgage, a reverse mortgage allows you to receive your equity in a lump sum, as monthly income, as a line of credit — or a combination of all three.

Because no mortgage payment is made, the balance of the loan grows with time rather than dropping.

Mortgages for manufactured homes not secured by real estate

Manufactured homes can be an affordable alternative to a standard home built on a foundation. The homes are built in a factory, then transported and pieced together on land you may own or rent.

If the land is rented, or the manufactured home has not been affixed to the land on which it sits, the loan is treated differently because the home is considered personal property, much like if you were buying a car. You are provided with a HUD-1 settlement statement to go over your loan terms instead of the closing disclosure you would receive on a manufactured home that is affixed and taxed as real property.

HUD-1 statement vs. closing disclosure

In the past, most borrowers received a HUD-1 settlement statement before closing. However, since October 2015, borrowers of most mortgages now receive closing disclosures rather than settlement statements. The Consumer Financial Protection Bureau (CFPB) introduced these disclosures as a way to more clearly deliver information similar to what’s in settlement statements.

Despite the change, however, not every borrower will get a closing disclosure. As mentioned above, borrowers taking out reverse mortgages, HELOCs or certain manufactured home loans will get HUD-1 settlement statements instead.

Settlement statements aren’t as easy to read as closing disclosures and don’t contain as much information. But that’s not the biggest problem with them: lenders don’t have to give you a settlement statement until the day of closing. If you want to see the document before closing, you’ll have to ask. In contrast, lenders must give you a closing disclosure three days before closing.

Everyone taking out a HELOC, reverse mortgage or manufactured home loan should ask their lender for the HUD-1 document at least a day before closing to allow time to review the contents, fix errors and raise questions with the lender.

What each HUD-1 page means

The HUD-1 may seem overwhelming at first glance. The tiny print and weird jargon make it easy to ignore. However, it’s worthwhile to learn the basics. At a high level, this document looks like this:

  • Page 1: Overview of all charges
  • Page 2: Detailed breakdown of every charge
  • Page 3: Summary of changes between the Good Faith Estimate and settlement, plus a loan summary

Page 1 of HUD-1: Loan overview

The first page of the settlement statement has a transaction overview, including the amount of cash you need to bring to closing. The sections below are highlighted so you can have an idea of what they look like on the HUD-1 settlement statement you’ll receive.

No. 1: Basic information

At the top of Page 1, you’ll see basic information about the mortgage transaction, including what kind of loan you’re getting and who’s involved in the transaction. Double-check that everything is accurate — right down to the spelling of your name.

No. 2: Summary of borrower’s transactions

This section summarizes the details from Page 2 of the settlement statement. You’ll want to pay particular attention to Line 303, which explains how much money you need to bring to closing.

If this number is higher than you expected, you’ll want to discuss it with your loan officer before you sign your closing papers.

No. 3 (Section 100): Gross amount due from borrower

This section explains the amount you owe, including the property purchase price (if you’re buying a home) and the associated fees. You’ll find an itemized breakdown of all the fees making up this total on Page 2. Line 120 explains the total amount you owe.

No. 4 (Section 200): Amount paid by or on behalf of borrower

This section details any credits you receive toward costs you’ve already paid or that the seller is paying. Line 201 shows the money you’ve already paid, such as an earnest money deposit, while Line 202 reflects the principal amount of the new loan. If the seller is paying closing costs, it should indicate “seller credit” or “seller paid costs” here. Line 220 will add up all the credits in this section.

No. 5 (Section 300): Cash at settlement from/to borrower

This section explains if you need to bring cash to the settlement. In most cases, the closing costs for a reverse mortgage refinance or HELOC will be subtracted from the loan, so you don’t need to bring funds to the closing. However, if you’re buying a manufactured home or using a reverse mortgage to purchase a home, you’ll likely need to bring cash to closing.

Line 303 explains the total cash you’ll bring to closing.

No. 6 (Section 400): Gross amount due to seller

This section provides an accounting of the costs the seller is paying, including property tax assessments they will pay through the date the sale is completed.

No. 7 (Section 500): Reductions in amount due to seller

This reflects costs deducted from the seller’s proceeds, including any loans that are secured by the property and any other costs that need to be paid by the seller to complete the sale.

No. 8 (Section 600): Cash at settlement to/from seller

This is the total amount the seller will receive at closing. This section is only filled in if you’re buying a home.

Page 2 of HUD-1: Explaining specific costs

Page 2 spells out all the itemized charges associated with your loan and whether the buyer (you) or the seller will pay them. Manufactured homebuyers may see entries in the seller’s section, but in most cases reverse mortgage and HELOC borrowers will only see data in the borrower’s section — unless a HELOC or reverse mortgage is being used for a purchase.

Check that you’re not paying fees that the seller or the lender agreed to pay.

No. 9 (Section 700): Total real estate sales/broker’s fees

If real estate agents were involved in the transaction, the commission paid to them for their services is reflected here. The fee is often a percentage of the price you paid for the property.

No. 10 (Section 800): Items payable in connection with the loan

Most loans have origination fees, points paid in advance (to reduce your interest rate) and various other fees. You will probably pay most of these fees at closing; if, however, you have paid a fee in advance, it will be marked “P.O.C.,” which means “paid outside of closing.” Some people finance their closing costs when they’re taking out a reverse mortgage or HELOC — still, even if you’re financing these costs, they will be outlined here.

No. 11 (Section 900): Items required by lender to be paid in advance

Depending on when you close, you’ll pay some interest on the new loan you are taking out. The closer you are to the end of the month, the less the daily interest charge will be. Mortgage insurance premiums have to be collected at the closing, and your homeowners insurance premium will also need to be paid in advance so your home is insured at closing.

No. 12 (Section 1000): Reserves deposited with lender

If you’re using an escrow account to pay for taxes or insurance, you’ll see upfront deposits listed in this section. HELOC and reverse mortgage borrowers are responsible for their own insurance and tax payments and shouldn’t see escrow deposits. However, if your closing date is around the time property taxes are due in your area, you may end up having to pay the tax bill at closing.

No. 13 (Section 1100): Title charges

These are the costs of changing ownership, such as title examination fees and attorneys fees. You will pay title fees regardless of whether you are buying a home or refinancing it. Lenders always require new title work to confirm that there are no new liens, judgments or owners on your property. New title insurance will be required on a refinance property, even though you purchased title insurance when you bought the home.

No. 14 (Section 1200): Government recording and transfer charges

In general, you’ll need to pay for a new deed and for your city to record a new mortgage. The city, county and state taxes for these fees are in this section.

No. 15 (Section 1300): Additional settlement charges

This section will have various charges related to pest inspections, lead-based paint testing, home warranties and other charges that haven’t been listed.

No. 16 (Section 1400): Total settlement charges

This section adds all the charges in Sections 700 through 1300. The total on this line should match Line 103 for borrowers and Line 502 for sellers (on Page 1).

Page 3 of HUD-1: Understanding your loan

No. 17: Your final closing costs

Page 3 compares your actual settlement charges and the charges listed in your Good Faith Estimate. The settlement statement lists charges in three sections. The first section shows charges that cannot change. The next section outlines charges that cannot change by more than 10%, while the final section outlines charges that may change.

There may be valid reasons these fees end up higher or lower, and your lender will have to notify you within three days of the reason and provide you with an updated Good Faith Estimate reflecting the amount of the cost increases, so you have the opportunity to review them.

In general, HELOC and reverse mortgage borrowers should not see many changes compared with the data in their Good Faith Estimate. You’ll want to ask your lender to explain any changes in this section.

No. 18: Your loan terms

The bottom of Page 3 in the HUD-1 document explains the details of your loan. Talk with your lender about anything that doesn’t make sense and continue asking questions until any issues are cleared up.

This section includes crucial information — for instance, how much your loan is, how long you’ll have it for and what the final interest rate is. It also notes your initial monthly payment, whether it can rise and the specifics of how your interest rate could rise. You’ll also see boxes about prepayment penalties and balloon payments.

Because these features can affect when you can pay off your loan, as well as how much your payments may increase with time, be sure you understand them.

Final thoughts about your HUD-1 settlement statement

Be sure you give yourself enough time to review each page of your settlement statement before you schedule your closing. Lenders aren’t required to provide you with a HUD-1 settlement statement until the day of closing, but you still shouldn’t feel pressured to sign anything.

Consult with an attorney or trusted financial advisor if you feel like you need a second opinion about whether the loan you’re applying for is in your best interest.

The information in this article is accurate as of the date of publishing. 

 

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