The HUD-1 Settlement Statement is a form prepared by closing agents itemizing all charges imposed on a buyer and a seller in real estate transactions. The HUD-1 is used primarily to settle reverse mortgage and mortgage refinance transactions. Since Oct. 3, 2015, all other types of real estate transactions use the Closing Disclosure form.
Breaking Down HUD-1 Form
The HUD-1 gives a picture of the closing transaction and provides each party with a complete list of incoming and outgoing funds. The Real Estate Settlement Procedures Act (RESPA) requires the HUD-1 to be used as the standard real estate settlement form in reverse mortgage and mortgage refinance transactions. Settlement agents also prepare HUD-1s to close transactions in which the borrowers applied for their mortgage before Oct. 3, 2015.
RESPA requires that borrowers be given a copy of the HUD-1 at least one day prior to settlement, although figures can be added or updated up to the time the parties are seated at the closing table. Most buyers and sellers study the form with their real estate agent, attorney, or the settlement agent. The more people who review it, the greater the likelihood of detecting errors. On the HUD-1 form, "buyers" are referred to as "borrowers" even if no loan is involved.
HUD-1 Itemized Charges
The HUD-1 is meant to be reviewed verso, or reverse side, first. The verso has two columns: The left-hand column itemizes the borrower's charges, and the right-hand column itemizes the seller's charges. The borrower's charges include mortgage fees such as the loan origination fee, discount points, a credit report, and appraisal and flood certification fees. Borrower charges itemized also include prepaid interest cost, homeowner's insurance fees, property taxes, owner's and lender's title insurance, and the closing agent's fees. The itemized seller charges include real estate commission, any contractually agreed-upon credit to the buyer and mortgage pay-off information if any. The seller's itemized charges typically are lower than the buyer's charges. The figures on the HUD-1 verso are added up, and the totals are carried to the form's recto or front side. The amount of cash required from the borrower and the amount to be given to the seller appear at the bottom of the recto.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires lenders to provide borrowers of all types of mortgages — other than reverse mortgages and mortgage refinances — with a closing disclosure. Under the TILA-RESPA Integrated Disclosure rule, borrowers must be provided with the disclosure three days before closing. The five-page disclosure includes finalized figures of the cost of the borrower's mortgage and closing costs. The three days allow the borrower to ask the lender questions and clear up any discrepancies or misunderstandings regarding costs before closing.