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HUD-1 Settlement Statement: Definition & Importance

Instructor: Eileen Cappelloni

Eileen worked for the Orange County Asssociation of Realtors for 31 years. She has written real estate courses and exams for other publishing companies

What is a HUD form and why is it required in just about every real estate transaction? In this lesson, you'll learn what this form is, why it's important and an explanation of the important sections. You'll also learn about how closing costs are calculated for both buyers and sellers.

What is a HUD Statement?

Abigail and John Middleman want to buy a house and not spend more than $300,000 for it. After their down payment on the house, their total available cash will be about $22,000. They think that the rest of their money can be used for moving expenses and perhaps a new car.

Not so fast, Mr. and Mrs. Middleman! In addition to the cost of financing a new home, there are many other fees and expenses that must be paid at their closing.

Housing and Urban Development (HUD) statement refers to the form that financial agents must use to finalize and itemize all charges imposed on buyers and sellers. Sometimes it is referred to as a HUD1 statement or a settlement statement. This particular form is required by the federal Real Estate Settlement Procedures Act (RESPA) of 1975.

Prior to the HUD statement being received by buyers, they would receive a good faith estimate, which is an approximation of the total costs that the buyer will have to pay in order to close on the property. A final HUD statement must be received by the buyers no later than a day before their closing.

Why is a HUD statement needed?

When a real estate transaction involves federally related mortgage loans, this HUD form must be completed and received by the buyer. Mr. and Mrs. Middleman are naturally very interested in the fees and charges they must pay, and on the HUD statement, they can easily discover the details involved with their particular loan.

The dollar amounts listed on the HUD-1 take the form of credits and debits. A credit is the amount of money someone will receive and a debit is a fee that someone will pay. These apply to both the buyer and the seller.

HUD Form Description

Page One

The top half of page one simply asks for the parties' names, addresses, and other information pertinent to the transaction. The second half is actually split in half: on the left is Summary of Borrower's Transaction, and on the right is a Summary of Seller's Transaction.

On the left, on the borrower's side, is Gross Amount Due from Borrower; on the right, Gross amount Due to Seller, which are the amounts due prior to the credits and debits being calculated. Most of the line item titles are the same on both sides; what's important to remember that on the left is what is due from the borrower; on the right is what is owed to the seller. The Middlemans of course, are very interested in the left-hand side of page one.

There are different rules and laws in every state and locality, which is one of the reasons that HUD requires a closing statement be used at every federally funded transaction. Some taxes are collected in arrears, some in advance, some are collected monthly; others quarterly. The HUD statement requires that it is clear what taxes are due from the buyer and what taxes have already been paid by the seller.

The form itself is self-explanatory, although the amounts may differ greatly from one transaction to another. A charge of $800 in annual county taxes (line 107) might be charged in one area, while it might be only $200 in another due to whether taxes are being paid in advance or in arrears.

The Middlemans might question why they are being charged for taxes before they have even closed on their home. It may easily be explained that in this particular case, taxes for the entire year are paid in advance and were already paid by the seller. Therefore, the Middlemans must reimburse the seller for that payment since they are closing before the end of the year.

Page Two

The top of page two indicates that everything below is a form of a settlement charge, including:

  • the broker fee
  • items payable in connection with the loan
  • items required by the lender to be paid in advance
  • reserves deposited with the lender
  • title charges
  • government recording
  • transfer charges.

The right of the page is again, split in two, with a column indicating whether the buyer or seller is going to be paying for the corresponding charge.

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