Settlement Statement Explained: Banking, Law, Real Estate, More

What Is a Settlement Statement?

A settlement statement is a document that summarizes the terms and conditions of a settlement agreement between parties.

Commonly used for loan agreements, a settlement statement details the terms and conditions of the loan and all costs owed by or credits due to the buyer or seller. It also details any fees that a borrower must pay in addition to a loan’s interest. Different types of loans have varying requirements for settlement statement documentation. Mortgage loan settlement statements, used in real estate transactions, are often referred to as closing statements.

Settlement statements may also be used to document large business transactions, insurance claims, or financial market trades.

Key Takeaways

  • A settlement statement is a document listing the terms and conditions of a settlement agreement and details all related costs or credits due to each party.
  • A mortgage loan settlement statement is commonly known as a closing statement.
  • Settlement statements may also be used to document large business transactions, insurance claims, or financial market trades.

Loan Settlement Statements

A settlement statement is part of a loan closing package provided to a borrower, usually from a loan officer at a lending institution. Commercial and personal loan borrowers work with a loan officer who presents them with the closing and settlement statement.

Some online lending and credit card agreements may provide different iterations of settlement statements that a borrower receives electronically. Borrowers are usually required to review and sign a closing, or settlement, statement, to fully complete the lending process and receive their loan.

The signing of the settlement statement binds all of the terms associated with a loan.

Real Estate Settlement Statements

Comprehensive settlement statement documentation is required for mortgage loan products. In mortgage lending, there are two main types of settlement statements a borrower may encounter: closing disclosures and HUD-1 settlement statements.

A mortgage closing disclosure is a standard settlement statement that is formulated and regulated for the mortgage lending market. The HUD-1 settlement statement is a type of closing statement used in reverse mortgages.

The Real Estate Settlement Procedures Act (RESPA) governs the formulation of both closing disclosures and HUD-1 statements for the mortgage lending market. RESPA has been revised and updated throughout history to help manage mortgage lending disclosures and protect borrowers. RESPA requires a HUD-1 settlement statement for borrowers involved in a reverse mortgage and the mortgage closing disclosure for all other types of mortgage loans.

Both types of settlement statements, or closing disclosures, provide information on all aspects of the loan, including terms and conditions, and personal or entity information about the borrower. These forms detail the principal, interest, and closing costs, such as commission charges, and service costs associated with the loan. Details on principal, interest, variable rates, prepayment penalties, and escrow requirements are also included.

Loan Fees

Loan settlement statements come with a package of disclosures that help a borrower understand all of the terms and conditions of their loan. In addition to interest, some loans have a variety of added costs which may include:

  • Origination charges
  • Appraisal fees
  • Title administration costs
  • Home inspection costs
  • Background checking fees
  • Underwriting fees
  • Closing fees
  • Loan insurance charges

Special Considerations

The term "settlement statement" is often associated with the closing of a loan. However, other types of settlements can occur and require unique settlement statements.

Legal settlement: A legal settlement statement details the terms and conditions under which a legal matter has been settled. Legal settlement statements are often included to summarize payments required for a plaintiff or to detail ongoing conditions required in a family custody settlement.

Insurance settlement: An insurance settlement documents the amount an insurer agrees to pay the claimant after reviewing an insurance claim.

Banking: In the banking industry, settlement statements are produced regularly for internal banking operations. Settlement statements detail the daily settlement of funds. Settlement statements are also provided to individuals when funds have settled in an account and are available for access.

Trading: In financial market trading, settlement statements provide proof of a security’s ownership transfer. Typically, stocks are transferred with a T+2 settlement date, where ownership is achieved two days after the transaction is initiated.

Business transactions: Large business transactions, such as mergers and acquisitions, can be documented with a closing or settlement statement. Similar to loan closing statements, these settlement statements provide a comprehensive package of details, with the settlement statement serving as a summary sheet.

When Do I Receive a Settlement Statement for a Mortgage Loan?

When both parties agree to the terms and conditions of the settlement agreement, including all costs and fees, the closing will be scheduled and you will receive your settlement statement. Often, you will receive instructions from your settlement agent on how to deliver the money owed, and you'll then attend the closing and provide the required signatures. 

Is a Settlement Statement the Same as a Closing Statement?

Yes, a closing statement is commonly used to refer to the settlement statement in a real estate transaction.

What Is a Debt Settlement Statement?

When attorneys and debt settlement companies successfully work on behalf of borrowers with large amounts of debt to reduce some or all of their obligations, a debt settlement statement summarizes the debts expunged, reduced, or otherwise amended after a debt settlement has been completed.

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