Understanding Settlement Statements: A Comprehensive Guide to Closing Real Estate Deals
A Settlement Statement is an essential document in the real estate transaction process, listing and summing up the amounts that must be paid by each party to a sale. It also details how these monies are to be distributed. You might also hear it referred to as a Closing Statement or a HUD-1 Form.
What is a Settlement Statement?
The Settlement Statement is designed to provide a clear picture of all the financial transactions involved in a property sale. Here are some key components included in the statement:
- Sales Price: The agreed-upon price for the property.
- Loan Amount: If applicable, the amount of the mortgage loan taken out by the buyer.
- Prorated Taxes and Fees: Adjustments for property taxes, homeowner association fees, or utilities paid in advance by the seller.
- Deposits and Credits: Earnest money deposits, lender credits, and seller credits.
- Closing Costs: Fees for processing the sale, including title insurance, escrow fees, recording fees, and more.
Example of a Settlement Statement
Here’s a hypothetical example of what a section of a settlement statement might look like:
===================================================================
Summary of Borrower's Transaction
-------------------------------------------------------------------
- Sales Price: $300,000.00
- Deposit: $10,000.00
- Loan Amount: $270,000.00
- Closing Costs Charged to Borrower: $5,000.00
- Prorations and Adjustments: +$500.00
-------------------------------------------------------------------
- Total Due From Borrower: $15,500.00
===================================================================
Frequently Asked Questions about Settlement Statements
Q1: What is the difference between a Settlement Statement and a Closing Disclosure?
A: The Settlement Statement (like a HUD-1 Form) is typically used more in certain types of loans and transactions. The Closing Disclosure, introduced later, is more common for most residential transactions. Both serve similar purposes but may have different formats or required data fields.
Q2: Who provides the Settlement Statement?
A: The settlement agent, title company, or closing attorney will generally prepare and provide the settlement statement a few days before closing for review.
Q3: Do both buyers and sellers receive a copy of the Settlement Statement?
A: Yes, both parties will receive and review the statement before the closing date to ensure all figures are correct and agreed upon.
Key Terms Simplified
-
Closing Costs: Fees and expenses over and above the price of the property, such as broker’s commission, title insurance, taxes, and fees for inspection.
-
Prorations: Division of expenses between buyer and seller proportionally to their time of ownership.
-
Seller Credit: Amount credited back to the buyer from the seller to assist with closing costs or repairs.
In summary, the Settlement Statement is indispensable for providing transparency and clarity to all financial aspects of a real estate transaction. Understanding its components helps all parties know exactly where every dollar is going.
Related Terms: Purchase Agreement, Mortgage Payoff, Prorations, Closing Costs, Seller Credit.
