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Closing Costs - A detailed explanation of the HUD-1 Settlement Statement
What is the HUD1-Settlement Statement?This is the paperwork used in your closing
that will itemize the costs of all of the services provided to you and the fees associated with
them. One business day before the settlement, you have the right to inspect the HUD?1 Settlement
Statement. This form is filled out by the settlement agent who will conduct the closing. Be sure
you have the name, address, and telephone number of the settlement agent if you wish to inspect this form.
Here is an explanation of some terms and costs on the sheet.
Sales/Broker's Commission - This is the total dollar amount of the real estate broker’s sales
commission, which is usually paid by the seller. This commission is typically a percentage of the selling
price of the home.
Items Payable in Connection with Loan - These are the fees that lenders charge to process and approve
the mortgage loan.
- Loan Origination - Covers the lender's administrative costs in processing the loan. Often expressed
as a percentage of the loan, the fee will vary among lenders. Generally, the buyer pays the fee, unless otherwise
negotiated.
- Loan Discount - Also often called "points". This is an added fee you pay one-time at the start of your
loan to lower the interest rate for your loan. Each "point" is equal to one percent of the mortgage amount.
For example, if a lender charges two points on a $80,000 loan this amounts to a charge of $1,600.
- Appraisal Fee - This charge pays for the property price evaluation report created by an appraiser.
- Credit Report Fee - This fee covers the cost of a credit report, which shows your credit history.
The lender uses the information in a credit report to help decide whether or not to approve your loan and how much
money to lend you.
- Lender's Inspection Fee - Covers the cost of inspections ordered by your lender.
- Mortgage Insurance Application Fee - Covers the cost of processing of an application for mortgage insurance.
- Assumption Fee - Charged if a buyer assumes or takes over a seller’s existing mortgage.
- Mortgage Broker Fee - Fees paid to mortgage brokers would be listed here.
Items Required by Lender to Be Paid in Advance - You may be required to prepay certain items at the time
of settlement, such as accrued interest, mortgage insurance premiums and hazard insurance premiums.
- Interest - Lenders usually require borrowers to pay the interest that accrues from the date of settlement
to the first monthly payment.
- Mortgage Insurance Premium - Some lenders may require you to pay for part or all of mortgage insurance premiums.
- Hazard Insurance Premium - Hazard insurance protects you and the lender against loss due to fire,
windstorm, and natural hazards. Lenders often require the borrower to pay for the first year's premium at closing.
- Flood Insurance - The lender may require flood insurance depending on the location of the property. The amount is typically listed separately from other insurance.
Escrow Account Deposits (Reserves Deposited with Lender) - These lines identify the payment of taxes and/or
insurance and other items that must be made at settlement to create an escrow account. The lender is not allowed to
collect more than a certain amount. The individual item deposits may overstate the amount that can be collected.
The aggregate adjustment makes the correction in the amount on line 1008. It will be zero or a negative amount.
The following items are contained in this section:
- Hazard Insurance
- Mortgage Insurance
- City Property Taxes
- County Property Taxes
- Annual Assessments
- Aggregate Adjustment
Title Charges - Title charges may cover a variety of services performed by title companies and others.
Your particular settlement may not include all of the items below or may include others not listed.
- Settlement or Closing Fee - This fee is paid to the settlement agent or escrow holder. Responsibility of
payment of is usually negotiated between the seller and the buyer.
- Abstract Title Search, Title Examination, Title Insurance Binder - The charges on these lines cover the costs
of the title search and examination.
- Document Preparation - This is a separate fee that some lenders or title companies charge to cover their
costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.
- Notary Fee - This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that
the persons named in the documents did, in fact, sign them.
- Attorney's Fees - You may be required to pay for legal services provided to the lender, such as an
examination of the title binder.
- Title Insurance - The total cost of owner's and lender's title insurance is shown here.
- Lender's Title Insurance - Cost of the lender’s policy is shown here.
- Owner's (Buyer’s) Title Insurance - Cost of the owner's policy is shown here.
Government Recording and Transfer Charges - These fees may be paid by either the buyer or the seller,
depending on the arrangement that is made. Includes fees to legally record the new deed and mortgage, transfer
taxes and any state tax stamps that may be purchased.
Additional Settlement Charges -
- Survey - The lender may require a property survey. Usually the buyer pays the surveyor's fee,
but sometimes this may be paid by the seller.
- Pest and Other Inspections - This fee covers costs for pest and termite inspections of the property.
- Lead-Based Paint Inspections - Fee covers inspections for lead-based paint hazard. Only conducted in at risk homes.
Total Settlement Charges - The sum of all fees in the borrower's column entitled "Paid from Borrower's
Funds at Settlement" is placed here.
Paid Outside Of Closing (“POC”) - Some fees may be listed on the HUD-1 to the left of the borrower’s
column and marked “P.O.C.” Fees such as those for credit reports and appraisals are usually paid by the borrower
before closing/settlement. They are additional costs to you. Other fees such as those paid by the lender to a mortgage
broker or other settlement service providers may be paid after closing/settlement. These fees are usually included
in the interest rate or other settlement charge. They are not an additional cost to you. These types of fees will
not be added into the total.
Adjustments To Costs Shared By Buyer and Seller - At settlement it is usually necessary to make an adjustment
between buyer and seller for property taxes and other expenses. For example if a seller lived in the property for half
of the year and you were going to have it for the other half of the year, an adjustment would be made so the buyer would
pay their portion of the tax and the seller would pay their part. Similar adjustments are made for homeowner association
dues, special assessments, and fuel and other utilities, although the billing periods for these may not always be on an
annual basis. Be sure you work out these cost sharing arrangements or “prorations” with the seller before the settlement.
You may wish to notify utility companies of the change in ownership and ask for a special reading on the day of settlement,
with the bill for pre-settlement charges to be mailed to the seller at his or her new address or to the settlement agent.
This will eliminate much confusion that can result if you are billed for utilities used when the seller owned the property.
For more information and to see an example of a HUD-1 Sheet visit www.alta.org/consumer/hud1.cfm
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