What Is a "Settlement Statement?"
When you close on your loan, you’ll review a government-mandated document called the HUD-1 Settlement Statement. You’ll want to pay close attention to the HUD-1, because it itemizes all of the costs to obtain your mortgage. Most importantly, you’ll see direct comparison between the estimated costs in your Good Faith Estimate (GFE) and the actual, final costs you’re being asked to pay. Your estimated and actual costs should be very close; if they’re not, be sure to ask why.
Here’s an overview of what you’ll find in your HUD-1 Settlement Statement:
· Basic loan information: which lists the borrower name(s), property address, type of loan and name/address of lender and settlement or closing agent. The date of the closing is included as well.
· Transaction summary: where you’ll find an itemization of borrower costs, including the mortgage amount, settlement charges, other costs applicable and the amount due from the borrower(s) at closing. The amount due to or from the seller is itemized here as well.
· Settlement charges: which includes the total fees paid to the real estate broker, fees paid to the mortgage lender (such as the origination fee, appraisal fee, credit report and flood determination fee), prepaid costs (such as mortgage interest, mortgage insurance and homeowner’s insurance), reserves deposited with the lender for escrow and other purposes, title fees, government recording/transfer charges and any additional settlement charges that may apply.
· Comparison of your Good Faith Estimate and actual Settlement Charges: This is perhaps the most important part of the HUD-1, because here you can make a head-to-head comparison of your estimated vs. actual costs for mortgage origination, title services, appraisal, credit report and other costs. If there is an increase between your estimated and actual costs, the HUD-1 will show it to you as a percentage.
· Final loan terms: including your initial loan amount, loan term, initial interest rate and monthly payment for principal, interest and mortgage insurance (if applicable).
You’ll also see:
· Whether your interest rate, monthly payment (principal, interest, mortgage insurance) or loan balance can rise.
· If your loan has a prepayment penalty.
· If your loan has a balloon payment.
· What your total monthly payment is, with your escrow added (homeowner’s insurance and property taxes).
Be sure to ask your trusted Loan Officer any questions you may have regarding your Settlement Statement.