Key takeaways
- A settlement statement summarizes all the costs and credits associated with a mortgage loan or refinance.
- In 2015, borrowers began getting what’s now called a closing disclosure — a newer, more streamlined version of the previously used settlement statement.
- Lenders are required to provide this information to homebuyers at least three days before the closing date.
In the real estate world, the document that used to be called a settlement statement has evolved over time into what is now known as a closing disclosure. However, many still use the term, so you might come across it in the process of closing your mortgage loan. A settlement statement provides a breakdown of all the closing costs and credits involved in a real estate transaction or refinance — crucial for buyers to know so they can budget as wisely as possible. Here’s what to know.
What is a settlement statement?
A settlement statement is a document summarizing all costs owed by or credits due to the homebuyer and seller (or to the borrower in the case of a refinance). The document also includes the purchase price of the property, loan amount and other details. All of this serves to tell the buyer (or refinancer) how much money will be due at closing, and to whom. It also tells the seller how much their proceeds will be.
The settlement statement can be provided to the homebuyer and seller by the mortgage lender, a settlement agent, a title company or a real estate attorney.
Settlement statement vs. closing disclosure
If you got your mortgage prior to October 2015, you received a HUD-1 settlement statement. (HUD is the U.S. Department of Housing and Urban Development.) Today, most borrowers receive a similar document commonly called a closing disclosure, although it might still informally be referred to as a HUD-1 or settlement statement.
What happened in October 2015?
That’s when the consumer-protection laws often known as TRID, or “Know Before You Owe,” were passed by Congress. As a result, the Consumer Financial Protection Bureau required the HUD-1 to be replaced by the more streamlined and less-confusing closing disclosure. But it serves the same purpose — to make sure the borrower understands exactly what they’re getting into financially.
How does a settlement statement work?
Every real estate transaction requires a settlement statement of some kind. For residential purchases and sales it will likely be a closing disclosure, whereas some transactions may still get the HUD-1 or HUD-1A settlement statement.
- Closing disclosure: The five-page closing disclosure, which is largely used today, is a finalized version of the loan estimate (previously known as the good faith estimate), the document buyers receive when they initially apply for a mortgage, that provides a snapshot of expected fees. Your mortgage lender is required to give this to you a minimum of three business days before the closing. (This three-day rule doesn’t apply to sellers.)
- Settlement statement: The HUD-1 is a largely outdated form similar to the closing disclosure in that it itemizes costs and credits, but the timing of delivery is at least one day prior to closing. The figures on this form can be revised, removed or added at the last minute while both parties are present at closing. The HUD-1A may still be used when there is no seller in the transaction — meaning for refinances or reverse mortgages.
There has been a move by regulators to streamline these statements, or to make them less complicated.
— Mark Hamrick, Bankrate Senior Economic Analyst
Once you receive your statement, check it against your loan estimate to make sure there are no surprises. It’s crucial to review this document carefully to ensure all costs are accurate.
“While homebuyers might tend to focus on the final price of the property they’re buying, and for good reason, their due diligence should extend to disclosures, including those found in settlement statements,” says Mark Hamrick, Bankrate’s senior economic analyst. “Over the last decade or so, there has been a move by regulators to streamline these statements, or to make them appear less complicated. It is important that buyers and their representatives check the numbers to make sure they align, so that they know what they owe.”
What can I expect to see on my settlement statement?
A settlement statement outlines the expenses and credits that need to be paid by the homebuyer and seller (or borrower in the case of refinancing). Common fees listed on a settlement statement include:
- Loan amount, interest rate and terms
- Property’s contract price
- Allocation of real estate taxes and assessments
- Real estate agent commissions
- Escrow fees
- Lender fees, including for loan origination, underwriting and discount points
- Home inspection fee
- Appraisal fee
- Private mortgage insurance premium (if applicable)
- Homeowners insurance premium
- Title administration fees
- Title insurance policy premium
- Notary fee
- Deed preparation and recording fees
- Transfer taxes or conveyance fees
- Homeowners association fees (if applicable)
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