Up until October 3, 2015, the Consumer Financial Protection Bureau required HUD-1 Settlement Statements to be provided to every buyer and seller when a real estate transaction was taking place, as well as to borrowers who were going through the refinancing process. After that date, the bureau switched to requiring a Closing Disclosure. This five-page document combines the previous HUD-1 Settlement Statement, the Truth in Lending Act disclosures and the Good Faith Estimate. On its own, however, a settlement statement can be defined as a document which fully summarizes all fees that both a borrower and lender will be required to pay during the settlement of a loan.
TL;DR (Too Long; Didn't Read)
A settlement statement summarizes all fees that borrowers and lenders will be required to pay as part of the loan settlement process.
Understand the Time Frame
All lenders are required to provide a Closing Disclosure at least three business days prior to any settlements or refinance closing dates. This time gives you a chance to review the terms of the document and ensure they are close to or match the estimates that were given by the lender at the beginning of the process. If any of the information is incorrect, you'll be able to get it fixed before closing.
Review Page 1
The first page of the Closing Disclosure lists the loan terms. These include the loan amount, interest rate and monthly interest and principal amount. It will also state whether or not there is a prepayment penalty or a balloon payment. Next on page 1 is your projected payment with your estimated total monthly payments and your estimated taxes, insurance and assessments. Finally, there is a section for your closing costs.
Examine Page 2
Page 2 is dedicated to all the details associated with your closing costs. It is here that you'll want to examine origination charges, like application and underwriting fees, and service fees, such as appraisals and credit reports. There's also a section for other costs that include things like taxes and government fees, initial escrow payments due at closing and real estate commissions.
Look Over Page 3
When you get to page 3, you'll notice the first section is for calculating the amount of cash you'll need to provide at closing. This section takes into account any down payments you made and any seller credits. The second section provides a summary of transactions. On the left side is a list of the borrower's transactions. The right side contains the seller's transactions.
Inspect Page 4
Page 4 is exclusively for loan disclosures. It is here that you will learn how much a late payment will cost you, if the lender will accept a partial payment and whether or not you will have an escrow account. Should the lender not require an escrow account, page 4 will reveal if you are being charged an escrow waiver fee.
Investigate Page 5
There are four sections to the fifth and final page of your Closing Disclosure. The first is for your loan calculations, which include the total number of payments you'll make over the life of the loan, your finance charges and your APR. Section two lists other disclosures, such as your appraisal and contract details. The third section contains contact details for the lender, the buyer's real estate agent, the seller's agent and the settlement agent. The final section is where you sign and date that you have received and reviewed the document.
- Consumer Financial Protection Bureau: What is a HUD-1 Settlement Statement?
- Consumer Financial Protection Bureau: What is a Closing Disclosure?
- Consumer Financial Protection Bureau: Closing Disclosure Explainer
- Quicken Loans: What’s a Closing Disclosure and Why is it Important?
- Investopedia: Settlement Statement
Alicia Bodine is a New Jersey-based writer specializing in finance. With more than 13 years of experience, her work has appeared in LendingTree, GoBankingRates, Sapling, Zacks and Pocket Sense.