What Is a Settlement Statement?

A settlement statement is a document that summarizes all of the fees and charges that a borrower and lender face during the settlement process of a loan transaction. Different types of loans have varying requirements for settlement statement documentation. Settlement statements can also be referred to as closing statements.

Settlement Statement Explained

A settlement statement is part of the loan closing package that a borrower must review and sign when closing on a loan. Comprehensive settlement statement documentation is required in mortgage loan products. Other types of loans may not require extensive settlement statement documentation, with loan disclosures being outlined and agreed to in a borrower’s credit agreement.

In mortgage lending, there are two types of settlement statements a borrower will encounter: closing disclosures and HUD-1 settlement statements. These settlement statements provide a summary of the costs a borrower must pay.

Closing Disclosure

A closing disclosure is included with standard mortgage loan offerings. It is a five-page form that includes all of a borrower’s closing costs as well as loan terms and monthly payments. Regulations require a lender to provide a mortgage borrower with the closing disclosure three business days prior to the loan closing.

Changes to certain items in a closing disclosure form can cause an additional three day review period to be required. These changes include specific alterations of the annual percentage rate, adding a prepayment penalty and a change from a fixed-rate to an adjustable rate.

HUD-1 Settlement Statement

HUD-1 settlement statements are used in reverse mortgages and mortgage refinancings. This documentation is required by the Real Estate Settlement Procedures Act (RESPA). Regulations require that this document be provided to borrowers at least one day prior to the loan closing.

The U.S. Department of Housing and Urban Development provides the HUD-1 settlement statement form for lenders. The form provides information on all aspects of a loan including terms as well as personal information about the borrower. Similar to a closing disclosure, the HUD-1 settlement statement includes comprehensive information about the borrower’s loan, detailing the principal and interest as well as all of the upfront costs, commission charges, service costs and any deductions associated with the loan. The HUD-1 settlement statement also clearly outlines all of the borrower’s loan terms including details on principal, interest, variable rates, prepayment penalties and any special terms associated with a loan such as escrow requirements.