It’s no secret that there’s a lot of paperwork involved in buying a home. After you select a mortgage lender to pre-approve you, you’ll be asked to provide all your most private financial documents, detail your income and residence history, and sign a stack of disclosures to get your loan approved. Then you’ll sign yet another stack of documents at closing.
The process can be confusing, but it helps if you go into it with a full understanding of the three most important closing documents you’ll be signing.
The settlement statement (aka “the HUD”)
Your settlement statement shows you the final versions of all line items you’re paying on your financed home purchase.
This document goes by many names, including estimated settlement statement, U.S. Department of Housing & Urban Development settlement statement, the “HUD,” or “HUD-1.”
Early in the loan process, you’ll see fees in disclosures lenders are required by law to give you, such as the Good Faith Estimate (GFE). However, the GFE doesn’t provide line-item detail.
Conversely, the HUD shows each individual fee clearly, starting with your total transaction summary on the left side of page one, then line-item fees on page two. These fees are broken down into the following categories:
- Real estate agent fees, which are commissions you might pay to the real estate agent as the buyer.
- Lender fees, including origination fees or “points;” any fees or credits for the rate you chose; and appraisal, credit report and other loan processing fees.
- Prorated items like loan interest from the loan funding day to the end of that funding month, prepaying one year of homeowners insurance (which is required by lenders), and any required prepaid mortgage insurance.
- Reserves deposited with the lender, which are only required if you’re setting up an “escrow” or “impound” account from which your lender will pay your insurance and property taxes. This is optional, and if you decline it, you won’t have to prepay these reserves at closing.
- Title fees, which are assessed by the title/escrow company serving as settlement agent for your transaction. This section also includes the title insurance you’re required to purchase to protect yourself and your lender from any unwarranted third-party claims on your property.
- Additional fees like contractors or pest inspections, or homeowners association move-in/move-out fees.
Critically, page three of your HUD shows how close or far your initial Good Faith Estimate was from your HUD, so you know if your closing terms match what your lender originally quoted to you.