How to read a HUD

How to Read A HUD

Introduction

In reviewing the HUD-1 or Settlement Statement it is important to realize what exactly you are reading and what each part means in the grand scheme of things.  The HUD-1 offers both the buyer and seller an exact accounting of all of the costs and fees associated with the purchase and transfer of property.

While the type of software that the title or closing company uses can dictate the exact layout of the HUD-1 there are some similarities that the parties can count on.  On the first page of the HUD-1 the parties will find a summary of both parties transactions.  This will include the following details:  the contract sales price for the purchase of the property; the earnest money or down payment paid by the buyer; the prorated property taxes for both of the parties; the closing costs or settlement charges that both parties are paying; the principal amount of the buyer’s loan if there is financing associated with the property; and any other miscellaneous fees and costs that are associated with the property.

The HUD Itself

The first page is perhaps the most important page because it will determine the bottom line for both parties.  It will show at the bottom of the page what the buyer has to pay out of pocket for the purchase and how much the seller will receive for the sale of the property at closing.

The second page will contain a breakdown of the settlement charges or the closing costs for both parties.  Typically, the seller will be paying the commissions associated with the real estate agents and this will be all of the settlement charges the seller owes.  The buyer will have fees associated with his or her loan, which will typically include a loan origination charge, an appraisal fee, a credit report, and other miscellaneous services and costs required by his or her lender or the type of loan that he or she is obtaining.  The buyer will also have interest computed from the date of closing until the first of the next month on the loan.  Additionally, there will be an initial escrow deposit required by the lender for property taxes and homeowner’s insurance.  Finally, there will be the costs for the title company completing the closing and costs associated with title insurance, deed recording, and transfer taxes.

The third page of the HUD-1 is devoted to the buyer and reflects details about financing if there is a loan associated with the closing.  It will contain a comparison between the good faith estimate and the actual key numbers of the HUD-1.  This is to remind the buyer that the good faith estimate has expired and the parties, nor the loan service provider are no longer bound by those numbers.

Following that, the buyer will find additional key details regarding their loan, to include:  the principal loan amount; the initial interest rate; whether the interest rate is a fixed rate or a variable rate; the length of the loan; the monthly payment for principal and interest; the escrow payment every month; and the total payment for the property every month moving forward.  The follow on pages will just contain a further breakdown of the above-mentioned fees and costs.

In Conclusion

It is important for both parties to fully understand the HUD-1 prior to closing.  Both parties real estate agents should assist the parties in reviewing the HUD-1 and answering any questions that are associated with it.  Furthermore, at closing the closing agent or the attorney should go through the HUD-1 in detail to insure the parties have a comfortable understanding of all of the numbers and what they mean.