Settlement Statement or HUD -1 Defined
A settlement statement is a ‘loan-closing’ document that reviews all of the fees and charges chargeable to both borrowers and lenders during the settlement of a mortgage. Different types of mortgages call for different prerequisites for settlement statement documentation.
A Little More on Settlement Statement
A mortgagor is required to assess and sign a settlement statement when settling a loan. While there exist a few types of loans that do not necessitate extensive settlement statement documentation, most mortgages call for comprehensive settlement statement documentation.
Closing disclosures and HUD-1 forms are two kinds of settlement statements that are usually involved in a mortgage settlement transaction, and cover all costs chargeable to the borrower or mortgagor in the course of the settlement of the mortgage.
Closing Disclosure Statement
Standard mortgage offers come with an accompanying closing disclosure. The closing disclosure is a five-page document that describes all loan settlement costs chargeable to the borrower. The document also includes the terms and monthly payment criteria applicable to the mortgagor. The mortgagee is obligated by law to make available to the mortgagor the closing disclosure three business days preceding the mortgage settlement.
Any changes made to the disclosure form, such as modification of the interest rate type (from fixed to adjustable or vice versa), changes to the percentage rate or inclusion of soft prepay and hard prepay penalties will extend the assessment period by another three days.
HUD-1 Settlement Statement
Reverse mortgages and mortgage refinancing options both require the use of HUD-1 settlement statements as mandated by the Real Estate Settlement Procedures Act (RESPA). The HUD-1 form must be made available to mortgagors at least one day preceding the loan closing.
The U.S. Department of Housing and Urban Development (HUD) issues the HUD-1 settlement statement document to financiers. This document offers information about the features and terms associated with the loan, besides personal data about the mortgagor. As is the case with a closing disclosure, the HUD-1 settlement statement comprises comprehensive data about the mortgagor’s loan, including explicit details about the principal, interest payable and miscellaneous charges, and any commissions and applicable deductions associated with the mortgage. Furthermore, the HUD-1 explicitly mentions all details pertaining to the mortgage principal, rate of interest, adjustability in rates, prepayment penalties and any special conditions that may be tied to a mortgage settlement.
References for HUD 1 Statement