What Is A Settlement Statement?

Definition and Purpose of a Settlement Statement

A Settlement Statement is a summarization vehicle most commonly associated with the Real Estate industry in that it lists all applicable fees and charges encountered by both the buyer and seller of the property during the actual settlement process.  HUD, or the US Department of Housing and Urban Development, typically has jurisdiction over this particular document.

Charges and Fees Itemized on a Settlement Statement

Typically, charges and fees that are summarized on a Settlement Statement are classified into two categories.  These are the charges and fees that apply to the Loan and the ones that apply to the Title.

Charges and fees which apply to the loan include:

  • Appraisal fees
  • Credit report charges
  • Document preparation fees
  • Final inspection charges
  • Loan origination fees

The charges and fees which apply to the title are:

  • Attorney fees
  • Charges for any facsimile transmissions
  • Notary fees
  • Title document preparation fees
  • Title insurance fees

Understanding a Settlement Statement

The Settlement Statement is actually short for HUD-1 Settlement Statement.  For most individuals reading and understanding this type of real estate oriented document can become a bit challenging and frustrating.  The document is usually provided by the broker or lender of the mortgage as is required by RESPA, or the Real Estate Settlement Procedures Act of 1974.  Just like a federal or state income tax return, this is a government document containing critical information for both the buyer and seller of the property.

Reading the document thoroughly and understanding it as well is therefore critical.  Digesting the Settlement Statement section by section is recommended as this will make it easier to comprehend the contents of it.  We have provided a brief summary of the most effective way to read and understand this document and listed them here.

Section A through I – most of the information contained in the first 9 sections of a Settlement Statement are extremely general in nature.  They contain the following information regarding:

  • Address and location information
  • Date of the real estate transaction
  • Personal information (e.g. name, address, etc.)
  • The type of loan employed to purchase the property

Section J – details and information that is mostly pertinent to the borrower will be found in this section.  Any costs or credits as well as the net amount owing are listed and outlined carefully.

Section K – details and information that is mostly pertinent to the seller of the property will be found in this section of the Settlement Statement.  Realistically, it is a summary of the property seller’s transaction.  It includes any adjustments that may have been made as well as the total amount actually due the seller of the property.

Section L – details and information pertinent to the seller and regarding financing the sale and the processing of it.

Hopefully, the above information will provide you with a useful tool for understanding the Settlement Statement whenever you are involved in the home buying or selling process.