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HUD-1 Settlement Statement: Definition & Importance

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

This lesson defines and explains the importance of the HUD-1 form. We will also briefly describe each section and explain the closing cost calculations involved in the form.

HUD-1 Definition

The HUD-1 Settlement Statement is a US Department of Housing and Urban Affairs required form used in real estate transactions involving federally related mortgage loans. The HUD-1 requirement originates from the Real Estate Procedures Settlement Act (RESPA). The settlement agent completes the form as part of the closing process. Borrowers have the right to see the form at least one day prior to closing. The form itemizes all of the costs involved in the transactions and their allocation to the buyer or seller. The HUD-1 also compares the final costs of various services and fees with the original good faith estimate made by the lender at the loan application.

The dollar amounts listed on the HUD-1 take the form of credits and debits. These apply to both the buyer and seller. A credit is simply an amount of money allocated to a party. A debit is a fee that the party will pay. These credits and debits are reconciled at points throughout the form. In the end, the form explains the flow of money prior to and at closing. Each party wants to know whether they have to write a check or get to collect a check, and that's what the HUD-1 determines.

There are lots of terms on the form that might not be immediately clear. These will be covered in detail in further topics. In the meantime, it may help to open a copy of the form at http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf and follow along throughout the lesson.

Sections B Through I

Section A is the easiest section for anyone to fill out. All it does is says 'This a HUD-1!'. Sections B through I contain mostly self explanatory information, like the names and addresses of everyone involved in the transaction or identifying information about the property and mortgage.

Section J

Section J is the Summary of Borrower's Transaction. It contains lines 100 through 303. Luckily, there aren't actually 203 lines. Line 101 starts with the contract price of the property. The rest of the 100s detail information like prepaid tax adjustments and settlement charges. These charges add up to the gross amount due from the borrower.

Lines 201-209 include any amounts paid on behalf of the borrower. These include any earnest money, loan principal, and loans taken subject to existing financing.

210-219 identify any adjustments for items unpaid by the seller. These include taxes and assessment adjustments.

220 shows the total amount of money paid by or for the buyer. It is calculated by adding up the credits and debits of the 200 series lines.

300-303 break down the amount of money that a buyer will receive at closing or the amount of the check they will have to write.

Section K

Section K is the Summary of Seller's Transaction. This section comprises lines 400 through 603.

400-405 itemize the gross amount due to seller.

406-412 state any adjustments for items paid by sellers in advance, such as taxes and assessments.

500-509 add any reductions in the amount due to the seller. This would include items like any settlement charges or paying off the seller's existing mortgage.

510-519 sum up the adjustment for items unpaid by the seller, such as taxes and assessments.

520 states the total reduction amount to the seller. This is an addition of the credits and debits in the 500 series lines.

600-603 calculate the amount due to the seller. This field states how much cash the seller will either receive or have to write a check for at closing.

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