The HUD-1 Settlement Statement gives you all the answers you need about your closing. Today, though, it’s called the Closing Disclosure. Any loans closed after October 15, 2015, use this new disclosure.
Lenders must provide you the form at least 3 business days prior to closing. You can then compare the form to your Loan Estimate. You received this document 3 days after applying for the loan. At that time it was an estimate, but it should be pretty accurate compared to your closing documents.
Look over your Closing Disclosure to make sure all fees are what you were told. The Closing Disclosure is 5 pages long. Here we help you decipher its contents.
Understanding the Terms and Payments Required
The 1st page of the Closing Disclosure shows the following information:
- Loan amount
- Loan type
- Interest rate
- Principal and interest paid each month
- Prepayment penalty details (if any)
- Balloon payment details (if any)
- Projected payments for Years 1-7 and 8-30
- Closing cost totals
The final line of the Closing Disclosure shows how much money you need to close on the loan. This is your bottom line figure. It’s similar to what you would have seen on the HUD-1 Settlement Statement.
If anything in these details don’t coincide with your Loan Estimate, talk to your lender. Don’t be afraid to ask questions of the lender. Before you close is the best time to work out the details.
Understanding the Closing Costs on the HUD-1 Settlement Statement
On page 2, you learn all about the closing costs. You’ll see categories, such as:
- Loan origination charges – This includes any points, underwriting fees, and processing fees
- Services you didn’t shop for – This includes appraisal, credit report, flood determination, and tax service fees
- Services you did shop for – This includes title fees, pest inspection, and survey fees
- Other costs – This includes government fees, such as recording, homeowner’s insurance and real estate taxes
The costs on page 2 are the costs that should mirror your Loan Estimate. If there are differences that you didn’t expect, talk to your lender. These fees directly affect how much money you need at the closing.
Understanding the Cash Needed to Close the Loan
Page 3 gives you bottom line figures regarding your transaction. This is where you’ll see your total closing costs, down payment funds, and escrow funds. It summarizes the entire transaction. This includes the payoffs to sellers or other mortgage companies (for a refinance). On the bottom of page 3, you’ll see both the buyer’s and the seller’s fees and the money owed at the closing.
Looking at Escrow Amounts
Page 4 shows you whether you have an escrow account set up or not. If you didn’t want an escrow account, talk to your lender before the closing. A big part of the closing figures includes the escrow account setup. Depending on when you close the loan, you could be funding several months of taxes and insurance into your account.
Page 4 shows you how much your escrowed property costs are each year. It also shows your non-escrowed costs, such as homeowner’s association fees. It details how much money goes into your escrow right from the start and how much you’ll pay each month towards it.
The Big Picture
Page 5 includes figures you should understand. They are big numbers as they show how much the loan costs over the entire term. If you take a 30-year loan, it shows the cost of the loan over 30 years. It breaks down not only the total, but also how much of it you pay in interest costs. It also shows you the annual percentage rate. This is the cost of the loan with closing costs included over the entire term.
What you Should Look for on the Closing Disclosure
The Closing Disclosure answers a few important questions. They are as follows:
- The amount borrowed – Don’t focus only on the loan amount on Page 1. Instead, look at the full cost of the loan. Did you finance any closing costs? If so, the loan costs you more in the end than you may realize. Look at Page 5. It shows the total of all of your payments. This gives you a better idea of what you will pay.
- The interest rate – Make sure the rate on the disclosures matches the rate you locked. If there’s a discrepancy, speak up now. Also look at the type of interest rate. Is it fixed or adjustable? If it’s adjustable, look at your future payments. It won’t give you an exact amount because no one can predict future rates. But, you can see when the payments adjust and prepare ahead of time.
- The closing costs – Some of the closing costs on your Closing Disclosure should match your Loan Estimate exactly. These include any lender fees; fees under the ‘Services did not Shop For’; and transfer tax. Other fees may increase, but by no more than 10%. Your lender must explain any increases to you.
- The points you pay – If you didn’t agree to pay any points, you shouldn’t see anything except underwriting or processing under Origination Costs. If did agree, they will show up there. Compare the points to what’s on your Loan Estimate.
The Closing Disclosure or previous HUD-1 Settlement Statement answer many questions. Their main purpose is to show you how much cash you need at the closing. It’s a breakdown of the entire loan and what it costs. Pay close attention to every line. Compare it line by line with your Loan Estimate. Ask questions and point out any discrepancies.
You have 3 business days to go over the disclosure. Use the time wisely. Any issues may take time to resolve. Delaying a closing on a home purchase could cost you money since you signed a purchase contract with a closing date. Work closely with your lender and your attorney if necessary. The Closing Disclosure should be a simple document you go over and see the fees you agreed to pay. If not, use this time to fix it before you close on your home purchase.