The HUD-1 Settlement Statement is one of the most important documents you will need to review at closing. This document sets forth all of the costs and expenses of settlement, as well as the adjustments between the Buyer (Borrower) and the Seller. Section 4 of RESPA and Regulation X of the Department of Housing and Urban Development (24 CFR part 3500) govern the HUD-1 Settlement Statement.
Milestone Title, the Settlement Agent, is responsible for preparing the HUD-1 to itemize all of the charges imposed upon the Borrower and the Seller. The Settlement Agent prepares the HUD-1 based on information contained in the Sales Contract, Loan Closing Instructions and the Abstract Report/Title Search, in addition to, any other charges which either the Borrower or the Seller will pay for at settlement.
The Loan Closing Instructions, provided by the Lender, instruct the Settlement Agent as to how the loan is to be documented on the HUD-1 and how the funds are to be disbursed. It is the responsibility of Milestone Title to see that all charges on the HUD-1 are substantiated in writing and to see that all deposits and disbursements are made in accordance with the HUD-1 and Loan Closing Instructions.
The Abstract or Title Search reflects any existing mortgages, judgments or liens that must be satisfied or paid off at the time of closing. There can be no payoffs or charges on the HUD-1 that are not reflected in the Abstract or Title Search.
The Lender MUST APPROVE the HUD-1 prior to closing and there can be no changes made after final approval.
General Breakdown of the HUD-1 Section-by-Section
The first page of the HUD-1 is divided into three (3) main sections.
The second page of the HUD-1 (Section L) itemizes the Settlement Charges for both the Borrower and the Seller. Again, the Borrower’s charges are in the left column and the Seller’s charges in the right column.
The third page of the HUD-1 is divided into two sections. The first section at the top compares the Good Faith Estimate (GFE) and HUD-1 charges for the Buyer only, and identifies which charges can or cannot increase between the time the GFE is given to the Buyer and the final HUD-1 is prepared for closing. There are certain charges that cannot increase at all; other charges that, in total, cannot increase more than 10%; and other charges that can change.
The second section of page three goes over the Loan Terms in detail. Such as, the loan amount, loan term, interest rate, monthly principal, interest and mortgage insurance payment, whether or not the interest rate can rise, and if so, by how much and when; if there is a pre-payment penalty and finally the total monthly amount owed including escrow account payments.