What Is a Closing Statement?
A closing statement is a document that records the details of a financial transaction. A home buyer who finances the purchase will receive a closing statement from the bank, while the home seller will receive one from the real estate agent who handled the sale.
- A mortgage closing statement lists all of the costs and fees associated with the loan as well as the total amount and payment schedule.
- A closing statement or credit agreement is provided with any type of loan, often with the application itself.
- A seller's closing agreement is prepared by the real estate agent and lists all commissions and costs in addition to the net total to be paid to the seller.
All loans are accompanied by closing statements, though they vary in complexity.
Understanding the Closing Statement
There are several types of closing statements that people are likely to be presented with, including a mortgage closing statement, when financing a home purchase; a loan closing statement, when obtaining any type of credit, and a seller's closing statement, after finalizing the sale of a home.
The Mortgage Closing Statement
Reading the closing statement is one of the last steps a borrower must take before signing on the dotted line and accepting the money for a mortgage or refinancing.
This statement is often called a HUD-1 form because it contains information that is required to be disclosed by regulations overseen by the federal Department of Housing and Urban Development (HUD). It is preceded by a Good Faith Estimate (GFE), which estimates the various fees and additional charges that the borrower will face at closing.
The HUD-1 should not vary significantly from the GFE.
The mortgage closing statement is often called a HUD-1 as it follows disclosure rules set by the federal Department of Housing and Urban Development.
The good faith estimate should be received about three days after the loan application goes in.
The final HUD-1 must be given to the borrower at least three business days before closing. It contains a detailed list of every fee and charge that the borrower will be required to pay, and to whom it will be paid. The gross amount due will be adjusted to reflect any costs already paid by the borrower.
The HUD-1 will even present all of those figures side by side with the estimate for easy comparison.
The closing disclosure will include the details of the loan, including the interest rate, the amount of the monthly payments, and the payment schedule.
Other Loan Closing Statements
Virtually any other type of loan comes with its own closing statement. This document may also be called a settlement sheet or credit agreement.
In a revolving credit loan such as a new credit card or a bank line of credit, the closing details are usually reported in the credit application, with the borrower's signature indicating agreement in advance to the lending terms.
A more complex document is commonly used for personal loans that involve a large lump sum, with or without collateral.
The Sellers' Closing Statement
Once a sale price is agreed upon, a seller of real estate gets a closing statement from the real estate agent. This will list all of the commissions and fees to be paid, and any credits that will be offset against them. The bottom line figure is how much the seller will receive once the transaction is finalized.
The Consumer Financial Protection Bureau requires that the seller receive this statement. The details may vary from state to state, though many real estate agents nationwide have adopted a template developed by a trade group, the American Land Title Association.