Settlement Statement
A Settlement Statement, also known as a Closing Statement or HUD-1 Form, is a detailed document used in real estate transactions. It lists the amounts that must be paid by the buyer and seller of a property, as well as how these monies will be distributed.
Key Components
- Buyer Debits and Credits: These include the purchase price, loan amounts, closing costs, prepaid expenses, property taxes, and any pro-rated amounts.
- Seller Debits and Credits: These encompass mortgage payoffs, broker commissions, real estate taxes, and any additional agreed-upon seller expenses.
- Total Cost Summary: Summarizes the total amounts the buyer needs to bring to the closing and what the seller will net after all expenses.
Examples
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Example 1 - Buyer Side:
- Loan Amount: $300,000
- Purchase Price: $350,000
- Closing Costs: $7,000
- Property Taxes: $2,500
Total Amount Buyer Must Bring to Closing:
- $350,000 (Purchase Price) + $7,000 (Closing Costs) + $2,500 (Property Taxes)
- Minus $300,000 (Loan Amount) = $59,500
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Example 2 - Seller Side:
- Mortgage Payoff: $200,000
- Broker Commission: $21,000 (6% of $350,000)
- Property Taxes: $2,500
- Repairs: $1,500
Total Net Proceeds to Seller:
- $350,000 (Purchase Price) - $200,000 (Mortgage Payoff) - $21,000 (Broker Commission) - $2,500 (Property Taxes) - $1,500 (Repairs) = $125,000
Frequently Asked Questions (FAQs)
What is the purpose of a Settlement Statement?
The primary purpose is to provide a comprehensive breakdown of financial obligations for both the buyer and the seller in a real estate transaction.
Who provides the Settlement Statement?
The escrow agent, title company, or lender typically provides the Settlement Statement prior to the closing date.
What is a HUD-1 Form?
The HUD-1 Form is a type of Settlement Statement used for mortgage transactions involving federally-related real estate closings.
Are Settlement Statements mandatory in all real estate transactions?
Most real estate transactions will require a Settlement Statement, especially those involving mortgages, refinancing, or the sale of real property.
Can errors be made on Settlement Statements?
Yes, which is why it is crucial for both parties to review the statement carefully for accuracy before closing.
Related Terms
Closing Costs
Definition: Expenses over and above the price of the property that both buyers and sellers normally incur to complete a real estate transaction.
Escrow
Definition: A legal arrangement in which a third party temporarily holds money or property until a particular condition has been met (e.g., the fulfillment of a purchase agreement).
Mortgage Payoff
Definition: The amount of money required to pay off an existing mortgage.
Property Taxes
Definition: Taxes levied by the local government on properties, calculated based on the property’s assessed value.
Online References
- Consumer Financial Protection Bureau (CFPB) - Closing Disclosure
- U.S. Department of Housing and Urban Development (HUD) - Settlement Costs
Suggested Books for Further Study
- “Real Estate Transactions: Analysis and Antecedents of Process” by Robin Paul Malloy
- “Modern Real Estate Practice” by Fillmore Galaty, Wellington Allaway, and Robert Kyle
- “The Book on Rental Property Investing” by Brandon Turner
Fundamentals of Settlement Statement: Real Estate Transactions Basics Quiz
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