What Is a Closing Statement?
A closing statement is a document that records the details of a financial transaction. A homebuyer 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.
All loans are accompanied by closing statements, though they vary in complexity.
- 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 Disclosure is prepared by a settlement agent and lists all commissions and costs in addition to the net total to be paid to the seller.
- With some types of loans, you may receive a Truth in Lending Disclosure form in lieu of a Closing Disclosure.
Understanding the Closing Statement
When financing a home purchase, buyers can expect to see a loan estimate within three days of applying for a mortgage. Prior to closing, the buyer will receive the final Closing Disclosure. If you are the seller, you’ll receive a similar Closing Disclosure that reflects your information along with your rights and obligations as the seller.
The Mortgage Closing Statement
Reading and accepting the final Closing Disclosure is one of the last steps that a borrower must take before signing on the dotted line and accepting the money for a mortgage or refinancing.
The final Closing Disclosure is preceded by the loan estimate, which estimates the various fees and additional charges that the borrower will face at closing. The final Closing Disclosure should not vary significantly from the initial loan estimate. The loan estimate should be received within three days of submitting the loan application.
The final Closing Disclosure 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 final disclosure will even present all of those figures side by side with the initial loan estimate for easy comparison. It also will include the details of the loan, including the interest rate, the amount of the monthly payments, and the payment schedule.
It’s important to carefully review the mortgage closing statement, to ensure that everything is correct and to check for any discrepancies.
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.
If you’re getting a reverse mortgage, you wouldn’t get the standard Closing Disclosure. Instead, you would receive a HUD-1 Settlement Statement and a Truth in Lending Disclosure form. If you’re applying for a home equity line of credit (HELOC), you may receive a Truth in Lending Disclosure form but not a HUD-1 Settlement Statement or a Closing Disclosure.
The Truth in Lending Disclosure provides important information about the cost of credit, including your annual percentage rate (APR).
The Seller’s Closing Statement
The seller will receive the final closing documents, including the Closing Disclosure, from a settlement agent working with the title company selected to close the transaction. This will list all of the commissions and fees to be paid, as well as 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.
If you’re selling a home at a profit, you’ll need the closing statement to record the details of the sale when you file your taxes.
Components of a Closing Statement
The closing statement includes information related to the cost of buying or selling a home. The form can also include details of the property itself. What’s included on your closing statement can depend on whether you’re the buyer or the seller.
Generally, closing statements can include these components:
- Property details. The closing statement should include basic information about the property, such as the address where it’s located, when it was built, and the type of structure it is (i.e., single-family home, multifamily home, manufactured home, etc.).
- Financial information. The closing statement should also detail the purchase price of the home, deposits paid by the buyer, and seller credits.
- Prorated amounts. If a buyer or seller is paying prorated amounts toward property taxes or homeowners association (HOA) fees, then these also would be included on the closing statement.
- Loan costs. This section of the closing statement would include information relating to the loan, such as points paid, underwriting fees, application fees, and origination fees. Mortgage insurance premiums and prepaid interest also would be included here.
- Miscellaneous loan costs. Other loan costs would be listed under a separate section. That includes appraisal fees, credit report fees, and research fees. Survey fees, inspection fees, and pest inspection fees also would be included on the closing statement.
- Escrow and recording fees. Escrow charges are detailed on the closing statement, along with any recording fees charged by government entities to record the transaction.
- Commissions. The closing statement also would specify what was paid in real estate commissions to the buyer’s agent and the seller’s agent. These costs are typically paid by the seller out of the proceeds of the sale.
This same information is also reported on the Closing Disclosure if your loan requires you to receive one.
Example of Real Estate Closing Statements
The American Land Title Association (ALTA) provides sample closing statements for both buyers and sellers in a real estate transaction. These statements look similar, though there are some slight differences in the information that’s reported. Below is an example of what the seller closing statement looks like. The buyer closing statement can be downloaded on the ALTA website, along with the seller statement.