When you buy a home or other piece of real estate property, your escrow or title company will prepare a HUD-1 Settlement Statement. This standardized form outlines all the costs included in your transaction as well as who is responsible for paying for each. When you receive your HUD-1 statement, you’ll know exactly how much you’ll need to bring to the closing table to close the deal.
The Real Estate Settlement Procedures Act is a set of laws that helps to protect consumers from unfair practices during the settlement process of real estate transactions. Among the laws are regulations limiting what settlement service providers can charge for their services and how they can work with other settlement providers. RESPA also requires that the HUD-1 Settlement Statement is given to all parties of the transaction no later 24 hours prior to the scheduled closing of the transaction.
Questions on the HUD-1
The RESPA requirement on the timing of your HUD-1 receipt helps to protect your rights and finances by giving you time to review the settlement charges and determine whether there are any discrepancies or errors. If there are items or charges on your statement that you don't understand, your primary source for clarification should be your lender. If you're unable to get the clarification you need from your lender, you can send a "qualified written request," which is a formalized letter or complaint to a lender from a consumer. Under RESPA, lenders have 20 days to acknowledge the inquiry and 60 days to resolve the issue.
Compared With the GFE
While 24 hours isn’t a lot of time to find out what you’ll be paying at the close of your transaction, the costs on your HUD-1 will likely not be surprising. This is because RESPA also requires your lender to give you a Good Faith Estimate -- GFE -- within three days of receiving your loan application. The GFE outlines all the costs associated with your loan and how much, if any, those fees are allowed to change at closing. For instance, the loan origination fees and APR quoted on your GFE has a "zero tolerance" level, meaning that these figures cannot increase at closing. Charges that you may have shopped around for yourself have no tolerance level, meaning that the costs are allowed to fluctuate at closing. These include title fees and home insurance rates, if you used a provider not quoted by your lender. When you receive your HUD-1, you can compare the figures there to your GFE to determine whether the costs are within the allowable amount.
If you don't receive your HUD-1 at least 24 hours prior to closing, or if you have any issues regarding the charges outlined, speak with your settlement officer or lender. If there is a simple mistake on the HUD-1, these professionals should be able to solve the issue. However, if there are fees outside the tolerance limits stipulated on your GFE, your lender is required to pay a tolerance cure. A tolerance cure means that the lender will credit you the difference between charges on the GFE and the HUD-1 if it is outside the respective tolerance levels. If you experience any problems with your lender regarding your GFE or HUD-1, you can file a complaint with the Consumer Finance Protection Bureau. The CFPB is there to ensure that your rights are safeguarded throughout the real estate transaction.
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