With the amount of paperwork that is shuffled at a real estate closing, it is easy to become intimidated when it comes time to close a real estate transaction. Don’t be intimidated. Most of this is the standard boilerplate and legalese. Most closing attorneys will breeze through this, expecting you to just nod and agree.
There is one area of your closing papers that you need to pay close attention to though: the HUD-1 or settlement form.
The HUD-1 is a government-mandated settlement statement that breaks down the costs of the real estate transaction in exhausting detail. This is an important document because it details how the end amount that the buyer and seller owe is calculated, and any miscalculation can mean that one party owes thousands more than they should.
So, let’s break down the HUD statement piece by piece. It’s only about two pages, so it shouldn’t take long.
The First Section
The first section of your HUD-1 settlement form will cover the basic information about the loan that will be used to purchase a specific piece of real estate. In sections B through I you will find the buyers, sellers and lenders names. You will see the address of the property and a legal description if necessary. The settlement company will be listed. The closing date will be listed. The loan will be described in exhausting detail.
Most of this is pretty simple stuff, but mistakes are made. One area to pay close attention to is the “Loan Type” section. Make sure the box that is checked is the correct one.
The Second Section
Section two of your HUD-1 settlement form will summarize the costs of the buyer and the seller. Section J deals with the buyer’s costs. It bears a strong resemblance to a tax form. Fields 100 through 120 detail the various sums the buyer owes. Line 120 will show the total. Fields 200 to 220 deal with amounts credited to the buyer with 220 being the total. 300 to 303 calculate the final amount due from the buyer using line 120 and 220 to calculate line 303 – the final amount due.
Section K deals with the seller’s side of the transaction. It will detail and total any reductions in the final amount due to the seller at close.
Check these figures carefully and make sure they are accurate.
The Third Section
Section three details the various settlement charges such as brokerage fees, lender fees, title insurance, escrow deposits, recording fees, etc.
Once again, make sure these fees are accurate and do not hesitate to ask questions of the closing attorney if you have any.
The Fourth Section
This is the Good Faith vs. Reality section, and many real estate professionals feel that this is the most important section for the buyer – and for good reason. In this section you will find a line-by-line comparison of the estimated costs of the loan versus the actual costs of the loan.
The final line will have a dollar amount and a percentage that the actual amount varies from the estimated amount. Most of the time this percentage is minimal, but on occasion, lenders make mistakes. If the amount exceeds 10-percent, the borrower is entitled to a refund for the overage.
The Final Section
The final section of the HUD-1 settlement form deal with the particulars of the loan. It will cover loan amount, interest rate, monthly payment, amount of insurance, etc.
So, that’s it. The HUD-1 form only looks intimidating. In reality, it’s very simple, and you shouldn’t feel intimidated as you check it line by line. It’s a very important document. Make sure to read it to protect yourself. Contact me today for a consultation. I will be happy to answer any questions you may have and/or help you find the home of your dreams.
Patty Ross
831-236-4513
pattyre@comcast.net
www.pattyrosscarmel.com
Photo courtesy of Alexander Owens at Flickr.com.
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