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mortgages Buying a Home - Settlement costs

Buying a Home - Settlement Costs

The following discusses the settlement services which you may be required to get and pay for when buying a home. These costs are itemized in Section L of the HUD-1 Settlement Statement. You also will find a sample of the HUD-1 form to help you to understand the settlement transaction.

Use this section as a guide, noting on it the possible services required by various mortgage lenders and the different fees quoted by service providers. Settlement costs can increase the cost of your loan, so compare carefully.

 700. Sales/Broker's Commission: This is the total dollar amount of the real estate broker’s sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home.

L. SETTLEMENT CHARGES

700. TOTAL SALES/BROKER’S COMMISSION based on price $ @ %=

PAID FROM BORROWER’S FUNDS AT SETTLEMENT

PAID FROM SELLER’S FUNDS AT SETTLEMENT

Division of Commission (line 700) as follows:

 

 

701. $ to

 

 

702. $ to

 

 

703. Commission paid at Settlement

 

 

704.

 

 

800. Items Payable in Connection with Loan: These are the fees that mortgage  lenders charge to process, approve and make the mortgage loan when buying a home:

801. Loan Origination: This fee is usually known as a loan origination fee but sometimes is called a "point" or "points." It covers the mortgage lender's administrative costs in processing the loan. Often expressed as a percentage of the loan, the fee will vary among lenders. Generally, the homebuyer pays the fee, unless otherwise negotiated.

802. Loan Discount: Also often called "points" or "discount points," a loan discount is a one-time charge imposed by the mortgage lender or broker to lower the rate at which the mortgage lender or broker would otherwise offer the loan to you. Each "point" is equal to one percent of the mortgage amount. For example, if a lender charges two points on a $80,000 loan this amounts to a charge of $1,600.

803. Appraisal Fee: This charge pays for an appraisal report made by an appraiser when buying a home.

804. Credit Report Fee: This fee covers the cost of a credit report, which shows your credit history. The mortgage lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.

805. Lender's Inspection Fee: This charge covers inspections, often of newly constructed housing, made by employees of your mortgage lender or by an outside inspector. (Pest or other inspections made by companies other than the lender are discussed in line 1302.)

806. Mortgage Insurance Application Fee: This fee covers the processing of an application for mortgage insurance.

807. Assumption Fee: This is a fee which is charged when a homebuyer "assumes" or takes over the duty to pay the seller’s existing mortgage loan.

808. Mortgage Broker Fee: Fees paid to mortgage brokers would be listed here. A CLO fee would also be listed here.

800. ITEMS PAYABLE IN CONNECTION WITH LOAN

 

 

801. Loan Origination Fee %

 

 

802. Loan Discount %

 

 

803. Appraisal Fee to

 

 

804. Credit Report to

 

 

805. Lender’s Inspection Fee

 

 

806. Mortgage Insurance Application Fee to

 

 

807. Assumption Fee

 

 

808. Mortgage Broker Fee

 

 

809.

 

 

810.

 

 

811.

 

 

900. Items Required by the  Mortgage Lender to Be Paid in Advance: You may be required to prepay certain items at the time of settlement, such as accrued interest, mortgage insurance premiums and hazard insurance premiums.

901. Interest: Mortgage Lenders usually require borrowers to pay the interest that accrues from the date of settlement to the first monthly payment when buying a home.

902. Mortgage Insurance Premium: The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement.

903. Hazard Insurance Premium: Hazard insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Mortgage Lenders often require the borrower to bring to the settlement a paid-up first year’s policy or to pay for the first year's premium at settlement.

904. Flood Insurance: If the mortgage lender requires flood insurance, it is usually listed here.

900. ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

 

 

901. Interest from to @$ /day

 

 

902. Mortgage Insurance Premium for months to

 

 

903. Hazard Insurance Premium for years to

 

 

904. years to

 

 

905.

 

 

1000 - 1008. Escrow Account Deposits: These lines identify the payment of taxes and/or insurance and other items that must be made at settlement to set up an escrow account. The mortgage lender is not allowed to collect more than a certain amount. The individual item deposits may overstate the amount that can be collected. The aggregate adjustment makes the correction in the amount on line 1008. It will be zero or a negative amount.

1000. RESERVES DEPOSITED WITH LENDER

 

 

1001. Hazard Insurance months @ $ per month

 

 

1002. Mortgage insurance months @ $ per month

 

 

1003. City property taxes months @ $ per month

 

 

1004. County property taxes months @ $ per month

 

 

1005. Annual assessments months @ $ per month

 

 

1006. months @ $ per month

 

 

1007. months @ $ per month

 

 

1008. Aggregate Adjustment

 

 

1100. Title Charges: Title charges may cover a variety of services performed by title companies and others. Your particular settlement may not include all of the items below or may include others not listed.

1101. Settlement or Closing Fee: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee should be negotiated between the seller and the homebuyer.

1102-1104. Abstract of Title Search, Title Examination, Title Insurance Binder: The charges on these lines cover the costs of the title search and examination when buying a home.

1105. Document Preparation: This is a separate fee that some mortgage lenders or title companies charge to cover their costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.

1106. Notary Fee: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.

1107. Attorney's Fees: You may be required to pay for legal services provided to the mortgage lender, such as an examination of the title binder. Occasionally, the seller will agree in the agreement of sale to pay part of this fee. The cost of your attorney and/or the seller’s attorney may also appear here. If an attorney's involvement is required by the lender, the fee will appear on this part of the form, or on lines 1111, 1112 or 1113.

1108. Title Insurance: The total cost of owner's and mortgage lender's title insurance is shown here.

1109. Lender's Title Insurance: The cost of the mortgage lender’s policy is shown here.

1110. Owner's (Buyer’s) Title Insurance: The cost of the home owner's policy is shown here.

1100. TITLE CHARGES

 

 

1101. Settlement or closing fee to

 

 

1102. Abstract or title search to

 

 

1103. Title examination to

 

 

1104. Title insurance binder to

 

 

1105. Document preparation to

 

 

1106. Notary fees to

 

 

1107. Attorney’s fees to

 

 

(includes above items numbers; )

 

 

1108. Title Insurance to

 

 

(includes above items numbers; )

 

 

1109. Lender’s coverage $

 

 

1110. Owner’s coverage $

 

 

1111.

 

 

1112.

 

 

1113.

 

 

1200. Government Recording and Transfer Charges: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The homebuyer usually pays the fees for legally recording the new deed and mortgage (line 1201). Transfer taxes, which in some localities are collected whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well (lines 1202 and 1203).

1200. GOVERNMENT RECORDING AND TRANSFER CHARGES

1201. Recording fees: Deed $ ; Mortgage $ ; Releases $

 

 

1202. City/county tax/stamps: Deed $ ; Mortgage $

 

 

1203. State tax/stamps: Deed $ ; Mortgage $

 

 

1204.

 

 

1205.

 

 

1300. Additional Settlement Charges:

1301. Survey: The mortgage lender may require that a surveyor conduct a property survey. This is a protection to the homebuyer as well. Usually the homebuyer pays the surveyor's fee, but sometimes this may be paid by the seller.

1302. Pest and Other Inspections: This fee is to cover inspections for termites or other pest infestation of your home.

1303-1305. Lead-Based Paint Inspections: This fee is to cover inspections or evaluations for lead-based paint hazard risk assessments and may be on any blank line in the 1300 series.

1300. ADDITIONAL SETTLEMENT CHARGES

 

 

1301. Survey to

 

 

1302. Pest inspection to

 

 

1303.

 

 

1304.

 

 

1305.

 

 

1400. Total Settlement Charges: The sum of all fees in the borrower's column entitled "Paid from Borrower's Funds at Settlement" is placed here. This figure is then transferred to line 103 of Section J, "Settlement charges to borrower" in the Summary of Borrower's Transaction on page 1 of the HUD-1 Settlement Statement and added to the purchase price. The sum of all of the settlement fees paid by the seller are transferred to line 502 of Section K, Summary of Seller's Transaction on page 1 of the HUD-1 Settlement Statement.

1400. TOTAL SETTLEMENT CHARGES (enter on lines 103, Section J and 502, Section K)

 

 

Paid Outside Of Closing ("POC"): Some fees may be listed on the HUD-1 to the left of the borrower’s column and marked "P.O.C." Fees such as those for credit reports and appraisals are usually paid by the borrower before closing/settlement. They are additional costs to you. Other fees such as those paid by the lender to a mortgage broker or other settlement service providers may be paid after closing/settlement. These fees are usually included in the interest rate or other settlement charge. They are not an additional cost to you. These types of fees will not be added into the total on Line 1400.

Calculating the Amount You Need At Settlement

The first page of the HUD-1 Settlement Statement summarizes all the costs and adjustments for the borrower and seller. Section J is the summary of the borrower’s transaction and Section K is the summary of the seller’s side of the transaction. You may receive a copy of the seller’s side, but it is not required.

Section 100 summarizes the borrower’s costs, such as the contract cost of the house, any personal property being purchased, and the total settlement charges owed by the borrower from Section L.

Beginning at line 106, adjustments are made for items (such as taxes, assessments, fuel) that the seller has previously paid. If you will benefit from these items after settlement, you will usually repay the seller for that portion of the cost.

Here is an example for you to use in making your own calculations:

J. SUMMARY OF BORROWER'S TRANSACTION

100. GROSS AMOUNT DUE FROM BORROWER:

101. Contract sales price

100,000.00

102. Personal Property

 

103. Settlement charges to borrower (line 1400)

4,000.00

104.

 

105.

 

Adjustments for items paid by seller in advance

106. City/town taxes to

 

107. County taxes to

 

108. Assessments 6/30 to 7/31 (owners assn.)

40.00

109. Fuel Oil 25 gals. @ $1.00/gal.

25.00

110.

 

111.

 

112.

 

120. GROSS AMOUNT DUE FROM BORROWER

104,065.00

Assume in this example, the cost of the house is $100,000 and the borrower’s total settlement charges brought from Line 1400 of Section L are $4,000. Assume that the settlement date is July 1. Here the borrower has agreed to pay the seller for the $40 Home Owners Association dues that have been paid for the month of July and for the 25 gallons of fuel oil left in the tank. This is added for a gross amount due from the borrower of $104,065.

Section 200 lists the amount paid by the borrower or on behalf of the borrower. This will include the deposit of earnest money you put down with the agreement of sale, the loan(s) you are getting and any loan you may be assuming.

Beginning at Line 210, adjustments are made for items that the seller owes (such as taxes, assessments) but for which you as the borrower will pay after settlement. The seller will usually pay you or credit you this portion at settlement.

200. AMOUNTS PAID BY OR IN BEHALF OF BORROWER:

201. Deposit of earnest money

2,000.00

202. Principal amount of new loan(s)

80,000.00

203. Existing loan(s) taken subject to

 

204.

 

205.

 

206.

 

207.

 

208.

 

209.

 

Adjustments for items unpaid by seller

210. City/town taxes to

 

211. County taxes 1/1 to 6/30 $1,200/ year

600.00

212. Assessments 1/1 to 6/30 $200/yr.

100.00

213.

 

214.

 

215.

 

216.

 

217.

 

218.

 

219.

 

220. TOTAL PAID BY/FOR BORROWER

82,700.00

 

 

In this example, assume the borrower paid an earnest deposit of $2,000 and is getting a loan for $80,000. A tax of $1200 and an assessment of $200 are due at the end of the year. The seller will pay the borrower for six months or one-half of this amount. Line 220 shows the total $82,700 to be paid by or for the borrower.

Section 300 reflects the difference between the gross amount due from the borrower and the total amount paid by/for the borrower. Generally, line 303 will show the amount of cash the borrower must bring to settlement.

300. CASH AT SETTLEMENT FROM/TO BORROWER

301. Gross Amount due from borrower (line 120)

104,065.00

302. Less amounts paid by/for borrower (line 220)

(82,700.00)

303. CASH (x FROM) ( _ TO) BORROWER

21,365.00

In this example, the borrower must bring $21,365.00 to settlement.

Adjustments To Costs Shared By the Homebuyer and Seller

At settlement it is usually necessary to make an adjustment between homebuyer and seller for property taxes and other expenses. The adjustments between homebuyer and seller are shown in Sections J and K of the HUD-1 Settlement Statement. In the example given above, the taxes, which are payable annually, had not yet been paid when the settlement occurs on July 1. The borrower will have to pay a whole year's taxes on the following December 1. However, the seller lived in the house for the first six months of the year. Thus, one half of the year's taxes are to be paid by the seller. Accordingly, lines 211 and 511 on the HUD-1 Settlement Statement would read as follows:

211. County taxes 1/1/97 to 6/30/97

$600.00



511. County taxes 1/1/97 to 6/30/97

$600.00

The borrower is given credit for this amount at the settlement and the seller will pay this amount or count it as a deduction from sums payable to the seller.

Similar adjustments are made for homeowner association dues, special assessments, and fuel and other utilities, although the billing periods for these may not always be on an annual basis. Be sure you work out these cost sharing arrangements or "prorations" with the seller before the settlement. You may wish to notify utility companies of the change in ownership and ask for a special reading on the day of settlement, with the bill for pre-settlement charges to be mailed to the seller at his or her new address or to the settlement agent. This will eliminate much confusion that can result if you are billed for utilities used when the seller owned the property.

Adjustments To Costs Shared By Homebuyer and Seller

At settlement it is usually necessary to make an adjustment between homebuyer and seller for property taxes and other expenses. The adjustments between homebuyer and seller are shown in Sections J and K of the HUD-1 Settlement Statement. In the example given above, the taxes, which are payable annually, had not yet been paid when the settlement occurs on July 1. The borrower will have to pay a whole year's taxes on the following December 1. However, the seller lived in the house for the first six months of the year. Thus, one half of the year's taxes are to be paid by the seller. Accordingly, lines 211 and 511 on the HUD-1 Settlement Statement would read as follows:

211. County taxes 1/1/97 to 6/30/97

$600.00



511. County taxes 1/1/97 to 6/30/97

$600.00

The borrower is given credit for this amount at the settlement and the seller will pay this amount or count it as a deduction from sums payable to the seller.

Similar adjustments are made for homeowner association dues, special assessments, and fuel and other utilities, although the billing periods for these may not always be on an annual basis. Be sure you work out these cost sharing arrangements or "prorations" with the seller before the settlement. You may wish to notify utility companies of the change in ownership and ask for a special reading on the day of settlement, with the bill for pre-settlement charges to be mailed to the seller at his or her new address or to the settlement agent. This will eliminate much confusion that can result if you are billed for utilities used when the seller owned the property.

HUD-1 Settlement Statement

Buying Your Home

Settlement Costs and Helpful Information

June 1997 Disclaimer

HUD-1 Settlement Statement Costs

A. U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT SETTLEMENT STATEMENT

B. TYPE OF LOAN





6. File Number

7. Loan Number



1. o FHA

2. o FmHA





3. o CONV. UNINS.

4. o VA

5. o CONV. INS.

8. Mortgage Insurance Case Number

C. NOTE: This form is furnished to give you a statement of actual settlement costs. Amounts paid to and by the settlement agent are shown. Items marked "(p.o.c.)" were paid outside the closing; they are shown here for informational purposes and are not included in the totals.

D. NAME AND ADDRESS OF BORROWER:

E. NAME AND ADDRESS OF SELLER:

F. NAME AND ADDRESS OF LENDER:

G. PROPERTY LOCATION:

H. SETTLEMENT AGENT: NAME, AND ADDRESS



PLACE OF SETTLEMENT:

I. SETTLEMENT DATE:

 

J. SUMMARY OF BORROWER’S TRANSACTION



K. SUMMARY OF SELLER’S TRANSACTION

100. GROSS AMOUNT DUE FROM BORROWER:



400. GROSS AMOUNT DUE TO SELLER:

101. Contract sales price





401. Contract sales price



102. Personal property





402. Personal property



103. Settlement charges to borrower(line 1400)





403.



104.





404.



105.





405.



Adjustments for items paid by seller in advance



Adjustments for items paid by seller in advance

106. City/town taxes to





406. City/town taxes to



107. County taxes to





407. County taxes to



108. Assessments to





408. Assessments to



109.





409.



110.





410.



111.





411.



112.





412.



120. GROSS AMOUNT DUE FROM BORROWER





420. GROSS AMOUNT DUE TO SELLER



 

200. AMOUNTS PAID BY OR IN BEHALF OF BORROWER:



500. REDUCTIONS IN AMOUNT DUE TO SELLER:

201. Deposit of earnest money





501. Excess deposit (see instructions)



202. Principal amount of new loan(s)





502. Settlement charges to seller (line 1400)



203. Existing loan(s) taken subject to





503. Existing loan(s) taken subject to



204.





504. Payoff of first mortgage loan



205.





505. Payoff of second mortgage loan



206.





506.



207.





507.



208.





508.



209.





509.



Adjustments for items unpaid by seller



Adjustments for items unpaid by seller

210. City/town taxes to





510. City/town taxes to



211. County taxes to





511. County taxes to



212. Assessments to





512. Assessments to



213.





513.



214.





514.



215.





515.



216.





516.



217.





517.



218.





518.



219.





519.



220. TOTAL PAID BY/FOR BORROWER





520. TOTAL REDUCTION AMOUNT DUE SELLER



 

300. CASH AT SETTLEMENT FROM/TO BORROWER





600. CASH AT SETTLEMENT TO/FROM SELLER



301. Gross amount due from borrower(line 120)





601. Gross amount due to seller (line 420)



302. Less amounts paid by/for borrower(line 220)





602. Less reductions in amount due seller (line 520)



303. CASH (_ FROM) (_ TO) BORROWER





603. CASH (o TO) (o FROM) SELLER



 

L. SETTLEMENT CHARGES

700. TOTAL SALES/BROKER’S COMMISSION based on price $ @ %=

PAID FROM BORROWER’S FUNDS AT SETTLEMENT

PAID FROM SELLER’S FUNDS AT SETTLEMENT

Division of Commission (line 700) as follows:

 

 

701. $ to





702. $ to





703. Commission paid at Settlement





704.





800. ITEMS PAYABLE IN CONNECTION WITH LOAN





801. Loan Origination Fee %





802. Loan Discount %





803. Appraisal Fee to





804. Credit Report to





805. Lender’s Inspection Fee





806. Mortgage Insurance Application Fee to





807. Assumption Fee





808.





809.





810.





811.





900. ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

901. Interest from to @$ /day





902. Mortgage Insurance Premium for months to





903. Hazard Insurance Premium for years to





904. years to





905.





1000. RESERVES DEPOSITED WITH LENDER





1001. Hazard Insurance months @ $ per month





1002. Mortgage insurance months @ $ per month





1003. City property taxes months @ $ per month





1004. County property taxes months @ $ per month





1005. Annual assessments months @ $ per month





1006. months @ $ per month





1007. months @ $ per month





1008. Aggregate Adjustment months @ $ per month





1100. TITLE CHARGES





1101. Settlement or closing fee to





1102. Abstract or title search to





1103. Title examination to





1104. Title insurance binder to





1105. Document preparation to





1106. Notary fees to





1107. Attorney’s fees to





(includes above items numbers; )





1108. Title Insurance to





(includes above items numbers; )





1109. Lender’s coverage $





1110. Owner’s coverage $





1111.





1112.





1113.





1200. GOVERNMENT RECORDING AND TRANSFER CHARGES

1201. Recording fees: Deed $ ; Mortgage $ ; Releases $





1202. City/county tax/stamps: Deed $ ; Mortgage $





1203. State tax/stamps: Deed $ ; Mortgage $





1204.





1205.





1300. ADDITIONAL SETTLEMENT CHARGES





1301. Survey to





1302. Pest inspection to





1303.





1304.





1305.





1400. TOTAL SETTLEMENT CHARGES (enter on lines 103, Section J and 502, Section K)





   

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