What is a settlement statement in real estate?

Quick insights

• A settlement statement is a document provided at least three days from closing that details every individual cost related to a real estate transaction.
• HUD-1 settlement statement for certain types of transactions is used to itemize home refinancing and reverse mortgages; closing disclosures are used for transactions that involve buying or selling property.
• It’s important to keep your settlement statement in case you need it later, but if it’s lost you may be able to receive a new copy from the lender, seller, attorney or agent involved.

A settlement statement is a document that itemizes the costs exchanged between two or more parties in a real estate transaction. There are two types you may come across: closing disclosures and HUD-1 settlement statements. In this article, we’ll explain how settlement statements work, the differences between the two types and what to expect if you need to review one.

Understanding settlement statements

A settlement statement is a multiple-page form, typically prepared by the closing agent, with fields for all possible financial costs related to the transaction. The document will show who has paid or will pay for each itemized expense, including loan amounts, fees, taxes, appraisals and any other relevant costs. Once drafted, the statement must be sent to the parties involved three days before the official closing.

The borrower/buyer, the seller and the lender (as applicable) can use the time before closing to review and resolve any discrepancies in the settlement statement. If changes need to be made, a revised version can be provided for signing at the closing table.

What to expect on a settlement statement

Settlement statements include a list of all expenses and credits which need to be exchanged during the transaction. Keep in mind, each statement will only show fees relevant to the specific transaction. Itemized costs may include:

• Loan-related terms and costs: Expenses that directly relate to the mortgage will be prominently detailed, displaying the loan amount, term and interest rate. Essential questions of the loan agreement may also be disclosed here, such as the potential for the interest rate to change over time or the presence of a prepayment penalty.
• Property-related costs: Fees that relate to assessing the property’s value and condition may be included in a settlement statement, such as the property’s contract price or fees for appraisal, home inspection or flood certification.
• Title and legal fees: Costs which ensure the legal transfer of property ownership are also relevant for a settlement statement. These may include title policy premiums and fees related to title administration, notarization, deed preparation, recording or attorney involvement.
• Taxes and government fees: Any mandatory fees imposed by the local or state government where the transaction is happening will be detailed, including the allocation of real estate taxes and assessment, transfer taxes or conveyance fees.
• Insurance and protection: Fees which enhance financial protections for the homeowner and the property may be found on this document, such as mortgage or homeowners insurance premiums.
• Broker and escrow fees: The cost for real estate services will also typically be included in the settlement statement. This may include the price of broker or agent commission, and fees for escrow services processing the transfer of funds.
• Miscellaneous fees: Any other costs that come up during the transaction may be included, such as a payment to the building’s homeowners association or courier services for document delivery.

Settlement statements vs. closing disclosures

Although the HUD-1 form and the closing disclosure document are officially designated for different kinds of transactions, their purposes are similar, and you may find people referring to either as a “settlement statement.” Prior to 2015, the HUD-1 settlement statement form was the standard document used to itemize costs for a majority of real estate transactions. In short, the document had room for improvement, so the Consumer Financial Protection Bureau (CFPB) began developing a new, specialized form as part of their “Know Before You Owe” initiative.

Effective from October 3, 2015, the closing disclosure is used to detail expenses specifically related to the homebuying process, such as a mortgage refinance.disc-consumer-finance-know-before-you-owe A HUD-1 settlement statement form may be used to itemize the costs of a reverse mortgage. In both cases, these documents are crucial for ensuring that borrowers understand the financial details of their transactions. It’s important for borrowers to review these documents carefully and ask questions about any terms or fees they do not understand before proceeding with the closing.

Accessing your settlement statement after closing

You may need to reference your settlement statement or closing disclosure later, so it’s important to carefully store the copy you were provided. If you no longer have a copy, you may be able to procure a copy by reaching out to another party involved in the transaction. You can reach out to the seller, the lender, or involved real estate attorneys or agents.

Keep in mind that if you bought or sold your home before 2015, you may have received a mortgage settlement statement. If you bought or sold a home after the new form was released, you will most likely be looking for a closing disclosure.

In conclusion

Settlement statements and closing disclosures are intended to clarify the costs of a real estate transaction for all parties before it takes place. While these documents can help you understand exactly what you owe or are owed in a transaction, the information can be dense and difficult to process. If you receive one of these documents and have questions, reach out to your lender, seller or representative before closing.