Understanding the HUD-1 Settlement Statement
What is the HUD-1 and When is it Used?The HUD-1 is a form used by the settlement agent (also called the closing agent) to itemize all charges imposed upon a borrower and seller for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.
Fees associated with the transaction but paid prior to closing are also included on the HUD. They are normally marked "POC," for Paid Outside of Closing.
Here's a printer-friendly version of the HUD-1 that you can print out and use to follow the text.
When is the HUD-1 Used?
The statutes of the Real Estate Settlement Procedures Act (RESPA) require the form be used as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. Where I work, it's used for nearly all transactions that involve a buyer and seller, including cash closings.
When is the HUD-1 Distributed?
RESPA states you should be given a copy of the HUD-1 at least one day prior to settlement. In real life, entries may still be coming in a few hours before closing. Most buyers and sellers study the statement on their own, with their real estate agent, and with the settlement agent. The more people who review it, the more likely that errors will be detected.
Don't assume that the closing agent is always correct. Mistakes happen. I've been in more than one closing where an error was found at the last minute. Ask as many questions as necessary to help you understand all charges.
Section L, Settlement Charges
If you printed the HUD-1, flip to Section L on page 2. That's where many entries are tabulated before being brought forward to page 1. Columns contain charges that are paid from either the borrower's or the seller's funds. Your closing statement probably won't have entries in all lines.
Section 700, Agency Commissions
This section deals with the commission paid to real estate agencies. Lines 701 and 702 show how commissions are split between two participating agencies.
Commissions are usually paid from the seller's funds. However, a buyer's agent who sells a for-sale-by-owner home may be paid by his or her client, not the seller.