Breaking Down Real Estate Financing with the HUD-1
Closing the Sale with the HUD-1 Settlement Statement
Today’s review is devoted to one of the most common forms used in loan preparation for the purpose of purchasing real estate, the HUD-1.
Who needs a Form HUD-1?
The HUD1 Settlement Statement is designed by the US Department of Housing and Urban Affairs (HUD). The form is used in real estate transactions involving federal mortgage loans for the purchase of real estate. The HUD-1 should be completed by the agent conducting the settlement as part of the overall process of closing the sale.
What is Form HUD-1 for?
This form is designed to give a statement of actual settlement costs representing all the costs (including payments for escrow and on the mortgage loan) associated with the object of the transaction. This form is preceded by the Good-Faith-Estimate (GFE) – the estimated amount of fees and costs at the time of the transaction’s end – provided by a lender to a borrower. The final amounts at closing may differ from those previously published, so the difference of the final sums should be reflected in the HUD-1 Statement.
If you are a buyer, Form HUD 1 will indicate how much the property is going to cost. If you are a seller, you will know how much you will receive from the transaction.
Is the HUD-1 accompanied by other forms?
As mentioned above, the HUD-1 Statement is preceded by the GFE document as required by the Real Estate Settlement Procedures Act. The Estimate act should be provided by a lender to a borrower within three days of the time that the creditor receives a notice from the borrower about a mortgage loan closing.
Additional forms may accompany the HUD-1 for the purpose of including information used locally in settlements. These documents can serve as testimony regarding the delay of monthly mortgage payments, previous money transfers between a buyer and seller, etc.
How do I fill out Form HUD-1?
The entire HUD 1 document is just three pages, each of which is divided into two parts: the seller’s and the buyer’s (the buyer is known as the “borrower” because the HUD-1 is meant to specify closings involving lender financing).
The first page contains general information about the object of sale, the parties involved in the transaction and their settlement agent, as well as the summaries of borrower’s and seller’s transactions. The first page can be filled in last, as it summarizes the information given on the next two pages.
The second page specifies the following list of settlement charges:
• Total real estate broker fees;
• Items payable in connection with the loan;
• Items required by the lender to be paid in advance;
• Reserves deposited with lender;
• Title charges;
• Government Recordings and transfer charges;
• Additional settlement charges.
The following topics on the third page compare the estimated charges that were shown on the Good Faith Estimate and the actual loan and closing charges:
• Comparison of Good Faith Estimate and HUD 1 charges;
• Charges that in total cannot increase more than 10%;
• Charges that can change;
• Loan terms.
Where do I send Form HUD 1?
Two copies of the completed Form HUD-1 must be kept by the seller and the buyer. It is important to save the HUD-1 for tax preparation in the year of the purchase or sale of the property.