How to Read a HUD-1 Settlement Statement

If you are about to purchase or refinance a home, then you will be faced with the task of reading and understanding a HUD-1 Settlement Statement. A HUD-1 Settlement Statement is provided by a mortgage lender or broker as required by the Real Estate Settlement Procedures Act (RESPA). The HUD-1 itemizes the costs and fees associated with the financing of a property, and it’s important that a buyer carefully review the statement for accuracy and fairness.

Like a tax form or any other government document, the HUD-1 Settlement Statement features a variety of sections that are of importance to buyers and sellers. There are 12 sections on the form as required by law, some of which contain sub-sections and additional line items. One of the best ways to better understand the HUD-1 Settlement Statement form is to look at section by section. To do that, here is a short summary of some of the most important sections that buyers and sellers should be aware of on the HUD-1 Settlement Statement form:

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HUD-1 Sections A, B, C, D, E, F, G, H, and I

Sections A through I are very general. They contain basic information about the type of loan being used to pay for the property, as well as personal information (i.e. addresses, date of transaction, location of the property, etc.). When reading a HUD-1 Settlement Statement, it is important to verify that the names and addresses on the form are complete and accurate.

HUD-1 Section J

Section J on a HUD-1 Settlement Statement contains details and information that pertain primarily to the borrower. The borrower’s costs, credits, and net amount owed for the purchase of the property are carefully outlined in section J. The following sub-sections related to the borrower’s responsibilities are important parts of section J:

100. Gross Amount Due from Borrower: This line contains the amount that the borrower owes. The amount owed is determined by the price of the property, fees, settlement charges, taxes that were prepaid by the seller, and any extra items on the property (i.e. appliances).

200. Amounts Paid or in Behalf of Borrower: This line contains any money that has already been put toward the purchase of the property by the borrower. Any deposit, financing, or money that the seller owes (i.e. unpaid taxes, repair costs, etc.) will be calculated into the total amount on this line.

300. Cash at Settlement From/To Borrower: This line contains the actual amount of cash that the borrower must have in hand at the time of settlement.

Section J is important on the HUD-1 Settlement Statement because it serves as the balance and checkpoint for any money owed by the borrower, any credits toward the borrower’s balance, and any money that the seller might still be responsible for. Review this section carefully.

HUD-1 Section K

Section K on a HUD-1 Settlement Statement contains details and information that pertain to the seller. It is basically a summary of the seller’s transaction. Here you will find a figure that is the gross amount due to the seller, as well as adjustments that have been made for items like past due taxes or taxes paid in advance.

HUD-1 Section L

Section L on a HUD-1 Settlement Statement contains detailed information about the financing and processing of the sale or refinancing of the home. The following sub-sections related to the settlement charges are important parts of section J:

700. Total Sales/Brokers Commission Based on Price: This line shows the total amount of the real estate brokers’ commission charges.

800. Items Payable in Connection with Loan: This line shows all of the fees associated with the home loan, including the origination fee, appraisal fee, credit report fee, and application fee for the mortgage. The amount on this line is typically paid out of pocket by the borrower and will not reflect in the total charges for the settlement on line 1400.

900. Items Required by Lender to be Paid in Advance: This line shows any monies that must be paid before the settlement and may include the interest on the loan before the first payment is due, mortgage insurance, and/or home insurance.

1000. Reserves Deposited with Lender: This line shows escrow items and there is a limit to how much a lender can require to be deposited. The money here will cover future expenses like property taxes.

1100: Title Charges: This line shows the amount due for legally changing the ownership of the property. It includes the closing fee, title examination fee, and any associated attorney’s fees. Sometimes this line is payable to a third party, depending on how the title change has been handled.

1200: Government Recording and Transfer Charges: The borrower is usually responsible for paying the deed fee, as well as any fees required by the city, county, or state to transfer the ownership of the property. All of these costs are listed together in total on this line.

1300: Additional Settlement Charges: This line is reserved for any additional settlement charges not included in any previous lines in section L. The costs here could include home inspections, surveying, or warranties.

1400: Total Settlement Charges: Lines 700-1300 are added together and appear as the sum on line 1400.

With sections A through L on the HUD-1 Settlement Statement, accuracy is of the utmost importance. Review and revise these line items carefully and double-check all figures. Don’t be afraid to ask questions of your settlement agents if something is unclear.

Good Faith Estimate

One final note. Mortgage lenders or brokers are required to provide borrowers with a Good Faith Estimate as required by RESPA. The Good Faith Estimate is documented on a form that matches the HUD-1 Settlement Statement. The HUD-1 is then required to be provided to the borrower at least one day before closing. This will allow the borrower to compare the actual costs and fees with the Good Faith Estimate.