Appendix C: HUD-1 Settlement Statement

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HUD-1 – Settlement Statement

The Settlement Statement, or HUD-1 Form, details the exact breakdown of all the money paid or received by both the buyer and the seller. A recent revision to the form provides space for the buyer to compare the actual figures to those given in the original Good Faith Estimate, which would have been provided within three days of completing the loan application.

When referring to the HUD-1 Form, the terms “debit” and “credit” are often used. A debit is a charge that would mean the buyer would have to pay more or the seller would receive less. A credit is a receipt of funds that would mean the buyer has to pay out less cash or the seller would receive more cash. Consider the following examples:

• The price of the home is a debit to the buyer and a credit to the seller.

• The loan proceeds would be a credit to the buyer, since it means the buyer will have to deposit less money.

• The seller's existing loan would be a debit to the seller, since it means that the seller would receive less money than if there were no such loan.

The revised HUD-1 Form is a three page form. The first page gives an overview of the transaction, including the final amount due from the buyer and the final amount payable to the seller. The second page gives more detail in how the charges and credits were computed, including information about commissions, various fees, prepayments, escrow (impound) information, title charges, recording fees and transfer taxes and any additional closing costs. The third page gives the buyer a comparison of the information originally given in the Good Faith Estimate and detailed disclosures about the loan and its terms.

Explanation of the HUD-1 Form

What follows is an introductory explanation of the various sections of the HUD-1 Settlement Statement form. You may wish to download a copy of the form and print it out and spend a few moments reviewing it before proceeding. You can download the form at:

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Initial Introductory Section

At the top of the first page, there is an introductory section that indicates the type of loan and some of the basic provisions of that loan. It appears as follows:

For the most part, the boxes which are to be filled in are self-explanatory. Be sure to note Section C above, which explains to the reader that the initials “POC” stand for “Paid Outside of Closing.” While the form indicates that this would be denoted as “(p.o.c.),” it is a common practice for settlement agents to indicate this with the initials “POC” followed by an indication of who paid those costs in parentheses. For example, the notation “POC (seller)” would indicate that the seller paid a cost outside of closing. “POC (buyer)” would indicate that the buyer paid a cost outside of closing. In a “no cost” loan, many costs would be noted as “POC (lender).”

Beneath this introductory section are sections J and K. Section J is on the left and is entitled “Summary of Borrower’s Transaction.” Section K is on the right and is entitled “Summary of Seller’s Transaction.” We will examine these sections separately.

Section J – Summary of Borrower’s Transaction Section J is divided into the following subsections:

• Lines 100-105: Gross Amounts Due from Borrower;

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• Lines 200-209: Amounts Paid by or in Behalf of Borrower; • Lines 210-220: Adjustments for items unpaid by seller; and • Lines 300-303: Cash at Settlement from/to Borrower.

Lines 100-105: Gross Amounts Due from Borrower This section appears as follows:

• Line 101 would list the price of the home (not including any separately purchased items of personal property);

• Line 102 would list the cost of any items of personal property which are being purchased separately, such as appliances or items of furniture.

• Line 103 would list the total settlement charges from line 1400 (at the bottom of the second page) of this form.

• Lines 104 and 105 would list costs which are owed by the borrower that were not listed on the Good Faith Estimate, plus additional items sometimes seen in rental properties.

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• Lines 106 to 108 are used for cases where the seller has paid for city or county taxes or special assessments in advance and must be reimbursed by the borrower.

• Lines 109 to 112 can be used for other reimbursements to the seller, such as for purchase of existing supplies of heating oil or for flood insurance premiums paid in advance for a policy assumed by the buyer.

• Line 120 is labeled “Gross Amount Due from Borrower” and shows the total of lines 100 through 112.

Lines 200-209: Amounts Paid by or in Behalf of Borrower

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• Line 201 lists the initial good faith deposit (earnest money) that was paid when the offer was made to the seller. Since it was previously paid by the buyer, it is treated as a credit, reducing further deposit requirements for the buyer.

• Line 202 shows the principal amounts of the loan(s) received by the buyer;

• Line 203 shows the loan balance of any loan which the buyer is assuming or taking title “subject to” existing loans.

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Lines 210-220: Adjustments for Items Unpaid by Seller This section appears as follows:

• Lines 210 through 212 are used for the situation where the borrower will end up paying for taxes for a period of time in which the seller still owned the property. The settlement agent will prorate the charges and credit the buyer with the proportionate amount which relates to the time that the seller owned the property. • Lines 213 through 219 give space for other situations where the buyer will end up paying for costs associated with the seller’s ownership period. These could include cases where the seller had collected the rent on a rental property for a time that extends past the settlement date, for instance.

• Line 220 is labeled “Total Paid by/for Seller,” and lists the total of lines 201 through 219.

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• When the amount in line 302 is subtracted from the amount in line 301, a positive result would indicate cash is needed from the borrower (as would be the case in purchase transaction). When the result is a negative number (as would be the case in a cash out refinancing), that would represent the amount to be paid to the borrower.

Section K: Summary of Seller’s Transaction

Section K, which is on the right side of the first page of the HUD-1 Form, gives the information about the money credited to the seller and charged to the seller.

It should be noted that in the case of a refinancing loan, there of course would be no seller involved. The settlement agent can do either of the following:

• Use the HUD-1 Form and leave blank the columns referring to the seller; or

• Use the HUD-1a Form, which is only for refinance loans and has no sections referring to the seller.

Section K is divided into the following subsections: • Lines 400-405: Gross Amount Due to Seller

• Lines 406-420: Adjustments for items paid by seller in advance • Lines 500-509: Reductions In Amount Due to Seller

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• Line 401 would list the sale price of the property and would be same number as listed in line 101 in Section J on the left side of the page.

• Line 402 would list any items of personal property sold separately from the property and would be the same number as entered on line 102 in Section J on the left side of the page.

Lines 406-420: Adjustments for items paid by seller in advance This section appears as follows:

• This section is the reverse side of lines 106 through 120 and would contain the same information and numbers as those lines.

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• Line 501 refers to “excess deposits.” An example of where this might occur would be if the listing real estate broker is holding the deposit and the deposit exceeds the commissions due and the broker will forward the excess directly to the seller without going through the settlement agent.

• Line 502 lists the seller’s total settlement charges from line 1400 at the bottom of page 2 of this Form.

• Line 503 lists any loans which the borrower is assuming or taking title “subject to” the loan.

• Lines 504 and 505 list the payoff amounts for any existing loans which are to be repaid. These figures would include accrued interest.

• Lines 506 through 509 would include the same items as were listed on lines 204-209 of Section J on the left side of this page.

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• The amounts listed in lines 510 through 519 would include the same amounts as were listed in lines 210 through 219 in Section J on the left side of the page. • The total of the items in lines 501 through 519 is listed in line 520.

Lines 600-603: Cash at Settlement to/from Seller This section appears as follows:

When the amount listed in line 602 is subtracted from the amount listed in line 601, a positive amount would be the money to be paid to the seller. (This would of course be the case in most selling transactions.) A negative number would mean that the seller

has to pay that amount to close the transaction. This would occur if the seller owed

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Section L: Settlement Charges

Section L lists the various settlement charges and takes up all of page 2 of the HUD-1 form. It contains the following subsections:

• Line 700: Total Real Estate Broker Fees;

• Line 800: Items Payable in Connection with Loan;

• Line 900: Items Required by Lender to Be Paid in Advance; • Line 1000: Reserves Deposited with Lender;

• Line 1100: Title Charges;

• Line 1200: Government Recording and Transfer Charges; • Line 1300: Additional Settlement Charges; and

• Line 1400: Total Settlement Charges. Line 700: Total Real Estate Broker Fees

Page 2 of the HUD-1 Form starts off with this section, which appears as follows:

This section covers the real estate commissions. Since the commissions are often split between the firm that represents the seller and the firm that found the buyer, lines 701 and 702 allows the disclosure of each side of the commission. Line 703 then shows the allocation of the commission between the buyer and the seller. Most often, the full commission is paid by the seller only, so the full amount would be listed in the third column, which is labeled “Paid From Seller’s Funds at Settlement.” Any amount that was paid by the buyer would be listed in the second column, which is labeled “Paid From Borrower’s Funds at Settlement.”

If any portion of the commission is paid from an earnest money deposit held by the real estate broker (or other third party), that could be listed in line 704 as a “POC” item.

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• Line 801 is the loan origination charges as were listed in Box 1 on the Good Faith Estimate Form and cannot change from that disclosure. This amount is listed in the shaded areas only, not in the two columns on the right.

• Line 802 is the credit or charge (points) as were listed in Box 2 on the GFE and cannot change from that disclosure. This number can be a positive or negative number and would be entered in the shaded area only, not in either of the two columns on the right.

• Line 803 is the adjusted loan origination charges as were listed in Box A of the GFE. The amount would be listed in the second column as a charge or credit to the borrower.

• Lines 804 through 808 are used to list charges that would have been listed in Box 3 of the GFE as “Required services that we select.” They would ordinarily be listed in the second column as charges to the borrower.

Line 900: Items Required by Lender to Be Paid in Advance This section appears as follows:

• Line 901 would show dates of the prepaid interest, which is normally the settlement date through the end of that calendar month. It also shows the daily rate. The number of days is then multiplied by the daily rate, and the result would be listed as a charge to either the borrower or the seller. (Normally it is charged to the borrower);

• Line 902 shows the mortgage insurance premium, but not any portion that is part of the escrow account or the reserves for the escrow account (which would be listed in the next section of this Form.) This amount would ordinarily be charged to the borrower and would be listed in the second column.

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• Line 904 (and any subsequent lines added) can be for other items required by the lender or for additional insurance premiums that the lender did not require. The amount would typically be listed as a charge to the borrower in the second column.

Line 1000: Reserves Deposited with Lender This section appears as follows:

• This section addresses the escrow account. In some areas this account is called an “impound account” or a “trust account.” This escrow account is for recurring costs such as homeowner’s insurance, mortgage insurance, property taxes, homowner’s association dues and the like.

• The amount of the initial deposit will ordinarily be entered in the second column, which is the column for charges to the borrower. The itemized items will be entered in the first column only (the shaded column).

• Line 1007 refers to the “Aggregate Adjustment.” After the items are computed individually, there is a different calculation which is done that takes into account all of the items at the same time. This aggregate method will not exceed the figures derived from the individual calculations, but will often be less. When the aggregate method results in a lower figure, a negative adjustment is entered in the shaded area of line 1007.

Line 1100: Title Charges

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• Line 1101 shows the title fees. These fees can include attorney fees, title search, documentation fees and the like. This amount would be listed in either the second column as a charge to the borrower or the third column as a charge to the seller, depending upon the agreement between the parties.

• Line 1102 shows the settlement or closing fee. It would only be put in the second or third columns if that amount was not included in the total entered on line 1101. • Line 1103 shows the charge for the owner’s title insurance and would be entered

in the second or third columns, as charges to either the borrower or the seller, as per their agreement.

• Line 1104 shows the cost of the lender’s title insurance policy, if any. It would only be listed in the second or third column if the figure was not included in the amount on line 1101.

• Line 1105 shows the lender’s title insurance policy limit. This is for informational purposes only and would be entered only in the shaded column (the first column).

• Line 1106 shows the owner’s title insurance policy limit. This is also for informational purposes only and would be entered only in the shaded column. • Lines 1107 and 1108 are used to disclose the division of the premiums for the

title insurance between the title agent and the underwriter of the title policy. It is for informational purposes only and would be entered only in the shaded column. If there are additional items, they can be added to this section with additionally sequenced lines. (The next line would be 1109, for instance.) Software packages will enable additional lines to be added when necessary.

Line 1200: Government Recording and Transfer Charges This section appears as follows:

• Line 1201 lists the total “Government recording charges” and would be entered in the second or third columns as a charge to either the borrower or seller, respectively.

• Line 1202 lists the detail of the charges for informational purposes only, and these figures would be entered in the shaded areas only.

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• Lines 1204 and 1205 give the detail information about the transfer taxes and would be entered in the shaded area only.

• Line 1206 (and any additional sequentially numbered lines) are used to itemize third party charges. Typically, those would have already been included in the items listed above and would be for informational purposes only and entered only in the shaded area.

Line 1300: Additional Settlement Charges This section appears as follows:

• Line 1301 would show the “Required services that you can shop for” from Box #6 of the Good Faith Estimate form. The amount would be listed in the second column if it is a charge to the borrower or the third column if it is a charge to the seller. (Most often these will be charges to the borrower.)

• Lines 1302 through 1305 would be for additional settlement charges not already included in this Form, such as some inspection charges and any premiums for warranties on the house or its components or parts.

Line 1400: Total Settlement Charges

This section is used to show the total settlement costs for both the buyer and the seller and appears as follows:

• The total costs charged to the borrower would be entered in the second column and the total costs charged to the seller would be entered in the third column. These figures would then be copied to lines 103 and 502 on the first page of this form.

Page 3 of the HUD-1 Form

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Good Faith Estimate no later than the third business day after the lender received the application.

On the third page of the GFE the form listed different settlement charge according to those that could not change, those that could change by no more than 10%, and those that could change (without any maximum). It is important to remember that for the second category (those that cannot increase more than 10%), the limit only applies if the lender selects the provider or if the borrower selected a provider that the lender identified or referred to the borrower. If the borrower were to select his or her own provider that was not referred by the lender, the 10% limitation would not apply.

The comparison between the HUD-1 and the GFE is divided into the following sections: • Items That Cannot Change;

• Items That Cannot Increase More Than 10%; • Charges That Can Change.

Items That Cannot Change

This section of page 3 appears as follows:

• The loan origination charge is found on line 801 of the HUD-1 form and Block #1 of the GFE. The figures would be entered in the two columns on the right under their respective headings.

• The credit or charge for the specific interest rate chosen is found on line 802 of the HUD-1 form and Block #2 of the GFE.

• The adjusted origination charges are found on line 803 of the HUD-1 form and Line A of the GFE.

• The transfer taxes are found on line 1203 of the HUD-1 form and Block #8 of the GFE.

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• The government recording charges can be found on line 1201 of the HUD-1 and Block #7 of the GFE. The figures from each of these forms would be listed under their respective column headings on the right side.

• The items listed in Block #3 of the GFE (Required services that we select) would be itemized in the lines below the government recording charges, and referenced to the appropriate lines of the HUD-1 form.

• Items from Block 4 (“Title services and lender’s title insurance”), Block 5 (“Owner’s title insurance”) and Block 6 (“Required services that you can shop for”) of the GFE form would only be included in this section if the borrower did

not find his or her own settlement service provider, but rather selected one that

was referred by the lender or MLO. If the borrower found his or her own provider, those items would appear in the following section.

• At the bottom of the this section, the totals of the two columns would be entered, and on the line below that the difference would be listed, both as a dollar amount and then as a percentage amount.

Charges That Can Change This section appears as follows:

• The “initial deposit to your escrow account” is found on line 1001 of the HUD-1 and Block #9 of the GFE. The amounts of these items is listed under their respective column headings on the right.

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• The “homeowner’s insurance” can be found on line 903 of the HUD-1 form and Block #11 of the GFE.

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Summary of Loan Terms

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References

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