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Realtor® Speak 102: What are all these charges on my HUD-1 Settlement Statement?

By
Real Estate Agent with Kimberly Howell Properties (210) 646-HOME

HUD-1 Settlement Statement showing seller's paying for loan costs.

to view larger version, click the image above

First, a few notes.  You may notice that I've opted to black out many of the figures and company names in the above image.  In regards to confidentiality I felt it necessary to do so to protect the people involved.  Overall, the message stays the same without giving too much information and exposing my clients, the lender, or the other agent and their clients involved in the transaction.  I have also highlighted a few key things - Borrower's column, Seller's column, and the "Items Payable in Connection with Loan" section.  I will dissect these in my post, but wanted you to notice them now.  You may also notice that my hand is very shaky when drawing lines with Gimp (a open-source photo tool similar to Adobe Photoshop).

The HUD-1 Settlement Statement.

The HUD-1 Settlement Statement contains a list of all the money passed around during a real estate transaction.  Simply put, it is the official accounting of the sale and purchase of a home.  It is required reading at the closing table and your agent should be aware of what's on it to make sure everything looks correct.  They are often a bit confusing at first, but after you've seen a few of them or had them explained they suddenly begin to make sense.

The above HUD-1 Settlement Statement is from a recent transaction where I represented the buyer.  It is only a small piece of the statement in order to illustrate a point that often confuses many buyers and sellers.  As I represented the buyer in the transaction, they had few questions about this section of the statement, because as you will see, all of the charges appear in the seller's column.

The red-highlighted section is for "Items Payable in Connection with Loan" (Section 800) - these are typically the lender's charges for giving you the loan.  Since the buyer is taking out the loan, the lender charges them with the various charges such as Loan Origination Fee, Underwriting Fee, pulling a Credit Report and more (the 900 section on the form covers thing requires by the lender to be paid in advance such as taxes, insurance, and interest).

Why is the seller being charged for the buyer's loan costs?

Of course the loan costs should be in the buyer's column (blue-highlighted) and not in the seller's column (green-highlighted).  Right?  Well, not exactly.  In this particular transaction, we had asked the seller to contribute some money to the buyer's closing costs (negotiated in the contract under Paragraph 12. A (1) (b) - Settlement and Other Expenses (see image below)).  This is a common negotiation in a real estate transaction in order to help lower the initial cost of getting into a home for a buyer and helping the seller get their home sold.  It is very common here in San Antonio for seller's to contribute to the closing costs of the buyer (I'd say 98% of the contracts I have seen involve some amount of seller paid closing costs).

Paragraph 12 of the One To Four Family Residential Contract (Resale) promulgated by the Texas Real Estate Commission

Because the seller in this particular contract had agreed to pay part of the buyer's closing costs, we have to account for this money in the HUD-1 Settlement Statement.  Unfortunately, the title company (who prepares the document) are not allowed to enter it as a lump sum. (which would make things very easy to see and understand on the statement)  Because of this, they have to find ways to show that the money was distributed by parsing it out through several different charges.  Let's say a buyer is receiving $2,000 in closing costs from the seller.  The escrow officer must find $2,000 of charges to even things out.  Occasionally you will even see small charges being made of just a few cents in order to balance everything out to the last penny.  As you can see from Paragraph 12 of the Texas Real Estate Commission's One To Four Family Residential Contract (Resale), the order in which the expense must be paid are laid out (Paragraph 12 A. (1) (b)) as well as what the buyer's expenses are (Paragraph 12 A. (2) (a) and (b)).

To make this parsing of costs a little more difficult, the lender must approve the HUD-1 Settlement Statement.  Each lender can determine what is allowable or not-allowable as far as who pays for what.  This requires the lender and the escrow officer to communicate clearly what charges they can put in which column.  I have seen a lender reject a HUD-1 because they didn't want a charge in one column or another and the escrow officer had to go back and find a new place to deal with the remaining charge.

So while it may look a little strange to see the buyer's loan costs in the seller's column, it is actually all fairly balanced out.  When you receive your HUD-1 Settlement Statement, you should speak with your Realtor® immediately to be sure you go through all the charges, check the math, and determine that it all adds up.

This is a post in a series on real estate education to help define some of the finer points of contracts and the process of buying and selling real estate in San Antonio, Texas (it's Texas real estate, so if you live outside of Texas, these articles may not apply to you).  You can read the previous posts; "Realtor® Speak 102: What do I need to bring to closing?," "Realtor® Speak 102: Who's paying for the survey?," "Realtor® Speak 102: Does that come with the house?," and "Realtor® Speak 102: What if the house burns down?" or check out my ongoing series Realtor® Speak 101 at RErockstar.com.

The Somers Team
The Somers Team at KW Philadelphia - Philadelphia, PA
Delivering Real Estate Happiness

Matt - The mysterious HUD-1 !  And the even more mysterious sellers assist !  Sellers assist can get so many people confused.  This is a great post to go over the HUD-1 and how closing costs are classified and how the seller can pay for part of the buyers closing costs in many transactions.  Good series !

Aug 22, 2009 10:07 AM
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

Great explanation, though I would disagree with one thing.  FHA loans are done to the above example.  Conventional loans do not appear this way, and the lump some seller contribution is allowed under the buyer's credit section on page one. 

Some title companies do the above for all loans just to stay consistant, but it's not necessary on Conventional loan.

Aug 22, 2009 01:31 PM
Terrie Leighton
Ferrari-Lund Real Estate - Reno, NV
Reno Real Estate Agent ~ Selling Homes in Reno

Matt ~ I am impressed you decided to tackle and explain the HUD 1! Those darn things can be so confusing! And they seem to very from title company to tile company! Which is why as agents we need to have a good knowledge of what is on them and be able explain all of the different charges to our clients and help them get through the closing.

This was a good refresher for me Matt, thanks!

Aug 22, 2009 04:43 PM
Matt Stigliano
Kimberly Howell Properties (210) 646-HOME - San Antonio, TX

Christopher and Stephanie - The HUD-1 can be a complete nightmare for many.  The one I referenced above was nice, because the closer gave us this copy as well - all the stars show what she charged in order to satisfy our seller paid closing costs.  Having that as a reference was a huge help to my buyer.

Donna - Thanks for the clarification.  I haven't seen them done any other way, even on conventional.  I guess it is just easier for them to keep doing it consistently then to switch back and forth all the time.

Terrie - Glad you enjoyed it.  Maybe one day I'll take it on line by line for some posts.  I think it does cause the most questions and often confuses people.  I think it would help if they would use "+" and "-" on the sheet.  So you could see where the money was coming out of and going into.  If you know your HUD-1, that's clear, but it would certainly help buyers and sellers with them.

Aug 23, 2009 02:19 AM