The HUD-1 Settlement Statement

The HUD-1, also known as the settlement statement, is a prescribed form from the U.S. Department of Housing and Urban Development (HUD). This form itemizes all charges imposed on the borrower and all charges imposed on the seller in connection with the settlement of your real estate transaction. One business day before the settlement, you have the right to inspect your HUD-1 Settlement Statement.

The HUD-1 is filled out by the settlement agent or escrow agent, who will conduct the settlement. The agent gets their figures from the closing instructions that the lender provides to them with the loan documents.  These instructions contain the lenders fees, broker and processing fees, appraisal and credit report fees and any other charges that need to be paid in connection with the loan.  The closing instructions also tell the escrow agent whether or not taxes and insurance should be taken for an escrow account, and if so, how much. 

All of the costs associated with your loan, whether it's a purchase or a refinance, or a first mortgage or a second mortgage or a home equity line of credit, are in plain view for you to see on the HUD-1.  If your mortgage professional gave you a good faith estimate when you initially applied for your loan (which they should have) the final fees on the HUD-1 statement should be pretty close to the good faith estimate.  Sometimes, especially in the case of a newly constructed home, there are more fees on the final HUD-1 then you expected due to HOA transfer fees, or transfer tax, or fees from the builder.  In any case, you should review your HUD-1 to make sure it's what you expected your fees to be.  Your mortgage professional should review it for errors such as, you are being charged for your appraisal when you already paid for it, but you should look it over also and don't be afraid to ask questions if anything seems out of line or not what you expected.

If you are charged a discount fee and it wasn't on your initial good faith estimate, you should ask why.  There are times when fees increase during the course of your loan process, especially if rates go up or maybe if your credit score dropped, but your mortgage professional should keep in contact with you and let you know what's changed and why.  I believe communication is the key to a successful loan closing.

Just an update to the topic of the settlement statement--there is new legislation coming soon that will limit the amount of difference between the initial good faith estimate and the final HUD settlement statement.  It will also require certain disclosures to be on the settlement statement.  More details about this will be posted soon.  Bottom line is that the new bill is designed to protect consumers from predatory lenders and dishonest loan officers.