The HUD-1

You have navigated through all the home buying obstacles and are nearing the time for closing on your new property when you start to wonder about your closing costs. Your broker or attorney says that it will all be explained on "the HUD"! What is the HUD? HUD is the U.S. Department of Housing and Urban Development.

The HUD-1, also known as the Settlement Statement is the form commonly used to track all the various costs related to a property purchase and sale transaction. It itemizes all of your closing costs.

As of January 1, 2010, dramatic changes have been made to federal RESPA (Real Estate Settlement Procedures Act) rules and the HUD-1 and GFE have been completely overhauled with the hope that it will be easier for buyers to understand settlement costs. RESPA is a federal law that helps protect consumers from unfair practices by settlement service providers during the home-buying and loan process. I have more information about consumer protection against predatory lenders.

The New HUD-1 Form and GFE (Good Faith Etimate) Form are at the heart of every real estate transaction and as a buyer, you need to understand them. HUD has published a great deal of information to help buyers and RESPA requires lenders and mortgage brokers to present a buyer with the Shopping for Your Home Loan HUD's Settlement Cost Booklet within three days of applying for a mortgage loan. In the booklet you will find a step-by-step guide to the new GFE as well as a rundown of the new HUD-1.

HUD is the U.S. Department of Housing and Urban Development. The left side of the form (J. SUMMARY OF BORROWER'S TRANSACTION) calculates the buyer's credits and debits; and the right side (K. SUMMARY OF SELLER'S TRANSACTION) tracks credits and debits for the seller. The top left side of the form shows amounts due from the Buyer, and the bottom left side shows the amounts paid for in behalf of the Buyer. The amount for the first entry in these two slots is the same - item 101 and item 401. Contract sales price.

It is the responsibility of your legal representative or the title company (not commonly used on Martha's Vineyard) to make sure the charges are entered correctly to either the Borrower or Seller side of the form as per the Purchase and Sale Agreement. You should be given a copy of the HUD prior to closing to review, and you should be familiar with the charges to ensure that the credits and debits are entered into the correct columns on the HUD.

Since most purchases involve a mortgage, the postings that follow items 800 - 905 on the Borrower side, will determine the amounts connected with the loan. Line 202 on the bottom left side of the HUD will show the loan amount. The total amount the Buyer will ultimately write a check for can be found on item 303.

Here are some of the charges that a buyer is going to face:
(Note: I have done my best to provide accurate fee charges; however, there may be differences in some cases.)

The list goes on . . .
Some items may be marked "P.O.C.", which means they are "paid outside of closing" and the buyer or seller may pay these costs prior to settlement. Examples are home inspections (Buyer), Title-5 wastewater system inspection (Seller), credit report, appraisal, etc. Generally, you can figure that closing costs will be about 4% to 6% of the Purchase Price of the property. If you want to try calculating an estimate on your own, try this Closing Costs Calculator.

One last word of caution on the HUD-1 Form: Buyers look at the settlement process as just the last step before they own their new home. Take your time in looking over this document. This document determines just how large the check you write will be --- the one that gives you the keys to your home. An incorrect accounting entry on the HUD-1 can cost you thousands of dollars. Review each line and have your legal representative explain any charges you do not understand. Also, note your tax accountant may wish to see your HUD before you file taxes in the year you purchase your home.