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.
- Sections A-I (the top portion) shows the loan type, file number, loan number, Mortgage Insurance Case Number, parties to the transaction, property address and settlement date.
- Section J (the left side) is a summary of the Borrower’s transaction.
- Section 100 is the Buyer’s DEBITS and reflects what the Buyer OWES, such as the Sales Price, Settlement Costs and Property Taxes the Seller has already paid.
- Section 200 is the Buyer’s CREDITS and reflects what CREDITS the Buyer has, such as the loan amount, Earnest Money Deposit, Closing Cost Credits, etc.
- Section K (the right side) is a summary of the Seller’s transaction.
- Section 400 is the Seller’s CREDITS and reflects what CREDITS are due to the Seller at closing, such as the Sales Price and Property Taxes the Seller has already paid.
- Section 500 is the Seller’s DEBITS and reflects the CHARGES or DEBITS of the Seller, such as Settlement Costs, Payoffs of existing loans, Closing Cost Credits and Water Escrow.
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.
- Section 700 reflects the Real Estate Brokers Commissions and Fees.
- Section 800 discloses all of the items payable in connection with the Loan.
- Section 900 reflects all of the items required by the Lender to be paid in Advance, also called Pre-paids, such as Interest, first year’s Hazard Insurance Premium and Mortgage Insurance.
- Section 1000 reflects the Reserves or Escrows deposited with the Lender, such as Property Taxes and Hazard Insurance. The Lender will escrow these items and pay them on behalf of the Borrower. The lender is not allowed to collect more than a certain amount.
- Section 1100 reflects all of the Title charges payable to the Title/Settlement Company, Underwriter and Third party providers.
- Section 1200 discloses the Government Recording and Transfer Charges which may be paid by the Buyer or Seller or Both, pursuant to what was agreed upon in the Sales Contract.
- Section 1300 reflects additional settlement costs such as the Survey, Pest Inspection and Home Warranty.
- Section 1400 reflects the total settlement costs for both the Buyer and the Seller which is then transferred over to the first page of the HUD-1 in Section 103 for the Buyer and Section 502 for the Seller.
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.