Utilizing the HUD-1 Form: When and How
Settlement agents, also known as "closing agents," used the HUD-1 Settlement Statement, a standard government real estate form, in the past to list all fees assessed to a borrower and seller during a real estate transaction.
Except for reverse mortgages, the phrase is no longer used. The U.S. Department of Housing and Urban Development (HUD) created it, in the beginning to provide each party with a comprehensive list of their incoming and outgoing funds.
Main Points
- Up until 2015, the standard statement used to itemize all costs for buyers and sellers in a real estate transaction was the HUD-1 Settlement Statement.
- It is still used in reverse mortgages, which are loans that let home sellers access the equity in their property.
- Since October 2015, the HUD-1 has largely been replaced by the Closing Disclosure during real estate closings.
A HUD-1 Settlement Statement: What Is It?
The HUD-1 form had to be used as the standard real estate settlement form in all transactions involving federal mortgage loans in the United States as per the Real Estate Settlement Procedures Act (RESPA).
Note: Cash closings were included in nearly all transactions that previously involved a buyer and a seller.
A HUD-1 statement would have been sent to you if your mortgage application was submitted on or before October 3, 2015. After October 2015, "closing disclosures" rather than HUD-1s were used to issue the majority of mortgage loans.
The modification was made in response to the TILA RESPA Integrated Disclosures, also known as TRID, which completely changed how mortgages are handled and disclosed.
HUD-1 Settlement Statements: Are They Still In Use?
For reverse mortgages, the HUD-1 settlement statement is still utilized. These mortgages are very popular among homeowners over the age of 62 who want to withdraw equity from their properties.
For the three to ten years that followed a short sale that occurred prior to 2015, lenders will frequently request a copy of an old HUD-1 to demonstrate the date the property closed.
When will the HUD-1 be available?
Prior to October 3, 2015, RESPA required that borrowers receive a copy of the HUD-1 no later than the day before settlement. However, it's possible that entries will continue to arrive up until a few hours before the contest closes.
With the assistance of their real estate agent and the settlement agent, most buyers and sellers studied the statement independently. The theory behind this was that the more eyes that read it, the more likely it was that errors would be found.
Whether dealing with the HUD-1 or the Closing Disclosure, you shouldn't always assume that the closing agent is right. Errors can be discovered at the last minute, and mistakes can and do happen. To ensure that you fully comprehend all charges, ask as many questions as necessary.
HUD-1 Form: Line by Line Explanation
The most important parts of the form are covered in this line-by-line summary. Yes, there are numerous lines.
Lines 700–1400 of Section L, Settlement Charges
Before being brought forward to Section L page 1 or page 2, a large number of entries are tabulated. Fees are broken down into columns and paid for by either the buyer or the seller. Most likely, none of these lines will be filled with entries in your closing statement.
Agency Commissions Section 700
The commissions given to real estate agencies are the subject of this section. The commissions are divided between the two participating agencies, as shown on lines 701 and 702.
Although buyer's agents who sell "for sale by owner" homes may receive payment from their client rather than the seller, commissions are typically paid from the seller's funds.
Items Payable in Connection with Loan, Section 800
Although sellers occasionally agree to pay specific amounts to assist the buyer in closing, the entries on these lines are typically paid from the buyer's funds.
- The fee the lender assessed for processing or initiating the loan is displayed on line 801. The percentage will be disclosed if the fee is a percentage of the loan amount.
- The "points" that the lender assessed are listed on line 802. One percent of the loan amount is equal to one point.
- Fees for appraisals are recorded on line 804. These may have been paid when you requested the loan. If so, it must be marked POC, which stands for paid after closing. Although it would be displayed, the sum would not be counted toward the overall fees you bring to settlement.
- If the origination fee does not cover the cost of the credit report, it should be entered on line 805 instead.
- Charges for inspections performed at the lender's request are also listed on line 805 of the invoice. Inspections of structures and additional pests are also noted elsewhere.
- A private mortgage insurance (PMI) provider may charge an application fee, which is listed on line 806.
- Only loan-assumption transactions in which the buyer assumes the seller's existing mortgage are permitted to use Line 807.
- For other loan-related expenses, such as commissions paid to a mortgage broker, use lines 808 through 811.
Section 900, Items to be Paid by Lender in Advance
The buyer typically pays for these fees. All of these are things that the lender demands but which are not always given to the lender.
- Line 901 is used to record interest that was paid at settlement for the period from closing to the first mortgage payment.
- Mortgage insurance payments are shown on line 902 and are due at closing.
- Later records are made for escrow reserves for mortgage insurance. It should be mentioned here if your mortgage insurance is a one-time payment that covers the duration of your loan.
- To have immediate insurance safety on the property, hazard insurance premiums must be paid at settlement and are recorded on line 903. It is not utilized for escrow-bound insurance reserves.
- The miscellaneous items on lines 904 and 905 include flood insurance premiums, mortgage life insurance, credit life insurance, and disability insurance premiums.
Reserves deposited with Lender, Section 1000
This section is used to itemize escrow payments made by the borrower to the lender for things like property taxes and liability insurance. There are limitations on how much the lender can charge, even though the number of months charged can vary.
Section 900 contains the most current fees for the costs that the borrower covered. The funds used to open the borrower's escrow account, from which the lender will deduct the premiums for the following year, are recorded on lines 1001 through 1007.
Note: It should be noted that each mortgage payment covers a portion of these ongoing costs.
Line 1008 represents an escrow adjustment that the settlement agent determined by contrasting various escrow formulas. This step is taken to ensure that the lender isn't taking more escrow funds than is permitted.
The number is either zero or negative.
Charges for Title, Section 1100
The term "title charges" refers to costs directly associated with the transfer of titles, such as title examination, title search, document preparation, and title insurance policy costs. Usually, the buyer is responsible for paying them.
In addition to the borrower's and seller's attorneys, there may also be a fee for the lender's lawyer in some cases. Fees for notaries and closing agents are additional items covered in this section.
When one person completes a number of tasks, many task fees can be bundled together.
- The fee for the settlement agent is recorded on line 1101.
- Lines 1102 and 1103 are used to enter the costs for the title search, examination, and abstract. If the same person handles both responsibilities, a lump sum will be entered in line 1103 instead. If an attorney or title company is performing the work, the charges are entered later on lines 1107 or 1108, respectively.
- Fees for the title insurance binder, also known as a "commitment to insure," are shown on line 1104. Title insurance premium payments are entered later.
- Charges for the preparation of deeds, as well as for work on mortgages and notes, are listed on line 1105.
- Line 1106 is used to record the fee a notary public charges for attesting to the execution of the settlement documents.
- Attorney fees are disclosed on line 1107.
- Except for the cost of the binder, line 1108 represents the cost of title insurance.
- Informational lines 1109 and 1110 list the prices for the separate title insurance policies purchased by the lender and borrower. Only line 1108 is continued.
- Lines 1111 to 1113 are used to enter additional title-related fees, which can vary depending on the location. Examples of entries include a tax certificate fee to the county tax collector or a private tax service fee.
Section 1200, Fees for Government Recording and Transfer
Charges such as those for recording deeds and mortgages and the cost of tax stamps are itemized in this section.
Amounts and Additional Settlement Charges in Sections 1300 and 1400
For the purpose of keeping track of survey fees and inspections for things like pests, lead-based paint, and radon, use Section 1300. There may also be structural examinations and examinations of the heating, plumbing, and electrical systems. If either party purchases a home warranty, the fee will be entered in this section.
The total settlement fees paid with funds from the seller and the borrower are shown on line 1400. Additionally, they are entered on lines 103 and 502 of Sections J and K.
Lines 100–303 of Section J: Summary of Borrower's Transaction
Sections J and K of the HUD-1 form can be found at the bottom of page 1. They describe the itemized transactions between the seller and the borrower.
Gross Amount, Section 100 Payable by Borrower
- The property's gross sales price is shown on line 101.
- Charges for buying personal property from the seller, such as drapes, a washer, a dryer, outdoor furniture, and decorative items, are listed on line 102.
- The total settlement fees paid by the borrower, which were moved forward from Line 1400, are shown on Line 103.
- Amounts due by the borrower or sums that the seller has already paid are shown on lines 104 and 105.
- If the borrower is taking over the loan, entries charged to the borrower also reflect any balance in the seller's escrow account. A portion of unpaid rent may be due from the borrower to the seller.
- For items that the seller has already paid for in advance, see lines 106 through 112. For instance, if the seller paid an annual bill, the buyer is required to pay the seller's prorated share of county taxes. Each owner is responsible for paying fees related to the time they owned the property.
- The borrower's total obligation is shown on line 120. It represents the sum of lines 101 through 112.
Section 200: Sums Paid by or on Behalf of Borrower
The borrower will receive all of these entries as closing-related payments.
- When an offer is accepted, the earnest money is paid and recorded on line 201 as a credit to the buyer.
- The new loan's principal balance is shown on Line 202, and the lender is disbursing it to the borrower.
- If the borrower is taking title subject to an existing loan or lien on the property or assuming a loan in any other way, they must use line 203.
- Miscellaneous expenses paid by or on behalf of the buyer are listed on lines 204 through 209. They may include things like a possible seller's allowance for product repairs or replacements. The seller also accepts a note from the borrower for a portion of the purchase price.
- Bills that the seller hasn't yet paid but still owe all or part of can be found on lines 210 through 219 of the document. The area may also include rents that the seller has already collected in advance for a period of time that extends past the settlement date, in addition to the taxes and assessments that are listed here.
- The sum of all the items in Section 200 is on line 220. The sum increases the proceeds to the borrower.
Cash at Settlement From/To Borrower, Section 300
This essentially outlines the exchange of funds at closing.
- The total amount due from the borrower is summarised on line 301.
- All items already paid by or on behalf of the borrower are listed on line 302.
- Lines 301 and 302 are separated by line 303. It most frequently indicates how much the borrower must have on hand for the closing. If the number is negative, the borrower will get money back at closing.
Lines 400–603 of Section K, "Summary of Seller's Transaction"
Section J, the Summary of the Borrower's Transaction, is immediate to the right of this one. It provides a summary of the seller's transactions.
The seller's funds are increased by the sums listed in Section 400, the Gross Amount Due to Seller.
- The property's gross sales price is shown on Line 401.
- Line 402 contains entries for any personal property that the seller might sell to the buyer, including drapes, a washer, a dryer, outdoor furniture, and decorative items.
- Other amounts owed by the borrower or sums already paid by the seller are shown on lines 404 and 405 of the document. If the borrower takes over the seller's loan, they might include reimbursements for the remaining balance in the escrow account, or the buyer might owe the seller a portion of unpaid rent.
- Items for which the seller has made advance payments are listed on lines 406 through 412. If the seller paid an annual bill but won't be the property owner for the entire year, for instance, the buyer might need to pay back the seller for a prorated amount of county taxes.
- The seller is owed the gross amount shown on line 420. It represents the sum of Lines 401 through 412.
Section 500, Seller Reductions in Amount Owed
This section's sums are deducted from the seller's funds.
- When the borrower's earnest money deposit is held by the seller's real estate broker or another party and paid to them directly, Line 501 should be used.
- The amount from line 1400, the seller's total charges as determined by Section L, is found in line 502.
- Line 503 must be used if the borrower is assuming or taking title subject to liens that are deducted from the sales price.
- Lines 504 and 505 are for any first or second loans, including accrued interest, that will be repaid as part of a settlement.
- The lines 506 through 509 are all blank. They are designated for varying entries.
- Deposits made by the borrower to the seller or a third party other than the settlement agent are recorded on line 506. The entry in 501 differs slightly from this. The party holding the funds, in this case, transfers them to the settlement agent for distribution at closing.
- These lines can also be used to list any other liens that must be settled in order to clear the property's title.
- Bills that the seller hasn't yet paid but still owe all or part of are listed on lines 510 through 519. The area may also include rent that the seller has already received in advance for a period that extends past the settlement date, in addition to the taxes and assessments that are listed here.
- All of the items in Section 500 are added up on Line 520. From the seller's earnings, the total is subtracted.
Section 600, Cash to or from Seller at Settlement
This sentence explains the money that the seller will either get or give at closing.
- The seller owes a gross amount, which was moved from line 420 to line 601.
- The total of the seller's proceeds reductions is shown on line 602 and is transferred from line 520.
- The difference between lines 601 and 602 is line 603. Although it typically denotes a cash payment to the seller, it is possible for the seller to owe money at closing still. The seller might, for instance, owe more than what is covered by the contract for first and second mortgages.
Important: In the event that you receive a HUD-1 in connection with your reverse mortgage transaction, this is one of the closing documents that you should keep. Any other real estate sale or purchase entails a similar closing disclosure.
Most Commonly Asked Questions (FAQs)
Exactly why was the HUD-1 replaced?
Consumers were previously getting a variety of documents that various federal agencies required. Because of the possibility of conflicting information in the documents, this could cause confusion on the part of the homebuyer. The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that these forms be combined into a single, less complicated document, the closing disclosure.
What time will my closing disclosure arrive?
You had three days before closing to receive this document per federal law. Unlike the HUD-1, which could be given up until the day of closing, this time frame is different.
Is the HUD-1 form shorter than the closing disclosure?
False; it is longer. The closing disclosure is five pages long, while the HUD-1 was four pages long with the signature page. Remember that the closing disclosure was created by combining a few different documents.
