With all the changes in the lending industry, Excalibur Title and Escrow, LLC is dedicated to keeping mortgage professionals, real estate agents and borrowers up to date and informed. As of January 1st 2010 HUD (the Department of Housing and Urban Development) has developed a new HUD – 1, or “settlement statement.” This has changed from a two page form to a three page form. Pages one and two have been left relatively unchanged; the new third page includes a summary of the material terms of the loan such as the interest rate, term and monthly interest and principal, as well as a line by line comparison of the HUD-1 fees with the same fees from the borrower’s Good Faith Estimate.
The easiest way to read a HUD – 1 is to start with page two.
700’s section – is used for a purchase transaction, and shows the realtor commissions and administrative fees.
800’s section - is used for the mortgage origination costs of doing the loan. Some of the fees that are associated with line number 801 include loan processing fees, underwriting fees, and any administrative fees which are now lumped together and labeled as origination charges. Line 802 would show any points or credits that were charged or credited. The remainder of the 800 section would include fees such as an appraisal fee (which is often paid outside of closing and would therefore be shown as “POC”), credit report, tax service fees and flood certification.
900’s section- is used for the per diem interest charges which can change depending on the day in which your loan closes or funds. Per diem interest is a reflection of the total interest payable over the life of the loan calculated as a daily rate. Per diem interest is collected for the total number of days remaining in the month in which the closing occurs from the date of closing through the last day of the month. Section 900 is also used for any Mortgage Insurance reserves that are required by the lender. Line 903 is used to show the cost of the home owner’s insurance that you have obtained on the property which may be paid in advance and therefore shown as a “POC” or paid at closing.
1000’s section- displays the amount to be deposited with the lender for the initial escrow reserve. The escrow reserve refers to the escrow account held by your lender to pay Homeowners insurance and property taxes. The amount of escrow reserves collected at closing is a function of the month in which the closing takes place, as well as the lender’s underwriting guidelines. Typically lenders will collect six months of escrow reserves. If you have questions about the number of months collected contact your lender.
1100’s section- displays the title insurance and related costs. Costs that appear in the 1100’s section can include settlement or closing fees for conducting settlement, document preparation, courier fees, title abstract and title examination. The most important lines are the Title Insurance premiums. Title insurance protects your interest in your property against loss arising from problems connected to the title to your property.
1200’s section- is the government recording and transfer section. These charges are related to the recording of the new deed and deed of trust on a property. The settlement company must ensure that the correct documentation has been recorded with the land records division of the appropriate county courthouse. The costs included in this section are recording fees which vary based on the number of pages recorded, transfer taxes, and recording taxes which are both based on the amount of the transaction, or in the case of a refinance based on the increase in loan amount.
Now we will move to page one of the HUD-1 settlement statement. The totals from the bottom of page 2 are transferred to the top of page one.
J. Summary of Borrower’s Transaction
100’s section - shows the gross amount due from borrower. The settlement costs from page two are added to the purchase price. This then is totaled at line 120 for Gross amount due from borrower.
200’s section - shows the amounts paid by or on behalf of the borrower, which would include any credits from the seller as well as earnest money deposits on the purchase contract, and the principle amount of the new loan. On line 220 all line item s from the 200’s section are totaled.
300’s section - gives a total cash due at settlement. Amounts due and credits applied on page one are reconciled to provide a net amount due at the bottom.
K. Summary of Seller’s Transaction
400’s section- begins with the gross amount due to the seller and this section would include the sales contract purchase price and any overpayment of property taxes that the buyer credits back to the seller. Line 420 will total the new net amount due to the seller.
500’s section- shows any reduction in amount due to the seller due to the application of credits for the buyer, or reimbursement to the buyer for any taxes, water/sewer bills or other charges paid by the buyer. The rest of the 500’s section will include any existing loans on the subject property that are being paid off. On line 520 will show the total net of the amount of deductions to the seller’s side of the HUD-1.
600’s section- indicates the total net settlement proceeds due to the seller. Any charges or credits to buyer applied on page one are deducted from the purchase price to obtain the net proceeds.
We will now look at the newly added page three of the HUD -1 Settlement Statement.
The first part of page 3 presents the comparison of the Good Faith Estimate and the HUD-1 Charges. There are three separate sections that are used in the comparison. Each section differs by the amount of variance allowed between the Good Faith Estimate (“GFE”) and HUD -1. Each fee is identified on a horizontal line and the HUD-1 calculation and GFE calculation are shown in contiguous vertical columns.
The first section displays costs that must show zero variance between the Good Faith Estimate and HUD -1 which include origination charges, points and transfer taxes. The second section reflects the fees that cannot increase on the HUD-1 by more than 10% from the GFE. This section includes costs such as recording fees, appraisal, credit report, tax service, and title insurance. Finally, the third section lists the fees that can change by any amount and therefore are not bound by the Good Faith Estimate.
The second part of the 2010 version of the HUD-1 is the explanation of loan terms. It summarizes the material terms of the loan, including the exact loan amount, the term of the loan and the final interest rate. Then it breaks down the amount of the monthly payment into principle and interest. Other terms described are whether the loan is fixed or adjustable, and if the loan is adjustable it gives the change dates and the amounts of the adjustments. Another very important section that you would want to take notice of is the last one which discloses whether or not pre-payment penalties and balloon payments apply to your loan; you should know long before closing if your loan has a pre-payment penalty.