In the stack of papers that a buyer is required to sign at the settlement table, one of the most important is known as the HUD-1 Settlement Statement. The HUD-1 itemizes both the buyer’s and seller’s funds involved in the real estate transaction, and is the standard real estate settlement form utilized today in the United States.
Following is a breakdown of an actual HUD-1 Settlement Statement of a transaction where I represented the buyer, on a property that settled in late May, at a selling price of $310,000. So fees exhibited in blue italics are actual dollar amounts from that closing. The normal charges that appear on the buyer side of the settlement sheet are reviewed below.
Items Payable In Connection With Loan
When a buyer obtains mortgage financing for a home the cost associated with that loan are itemized in this section. The common items found here are:
- Origination Charge : this is a category of charges that are levied by the lender as fees connected to the processing of the loan – $2,933.25
- Commitment Fee – A borrower pays this fee when he or she accepts the lender’s commitment of the funds. Commitment fees can only be accepted for written commitments. These fees must be fully refunded if the title is not acceptable or the appraisal report is unfavorable – $275.00
- Application Fee -Fee paid to a mortgage broker, banker, or lending institution when applying for a mortgage loan. The application fee includes the charges for soliciting, processing, placing, and negotiating the mortgage – $475.00
- Wire Transfer Fee – Charge to electronically transfer funds to the Title Company – $11.50
- Overnight Delivery Fee – Fee paid for the overnight delivery of mortgage papers to the closing officer – $23.00
- Points: a charge which is equal to 1% of the loan amount e.g. 1 point on a $100,000 loan is equal to $1,000, which can be incurred as an upfront payment when the buyer is “buying down” or lowering a stated interest rate, or for participation in custom lender programs. Points are not always paid when obtaining a mortgage but can also be incurred by a buyer who has less than perfect credit, and must pay the lender a premium in order to obtain the loan. Points may also be levied for loan amounts that are under $150,000 – $2,208.75
Appraisal Fee: the fee charged to the borrower for ordering and processing of the property appraisal. Appraisals are required when buying a property that involves mortgage financing – $400.00
Credit Report: the fee charged by the lender to run a Credit Report on the borrower – $11.20
Tax Service Fee: when a buyer is putting less than 20% down on a property the lender will require that real estate taxes be held in escrow, in a separate account to pay future tax bills. This fee is for the establishment of that account – $67.00
Flood Certification: all properties, whether or not they are close to any body of water, must have a Flood Certification. This is to ensure that the home being purchased does not require flood insurance – $13.00
Items Required By Lender To Be Paid In Advance
Daily Interest Charges: the per diem interest charge for the mortgage incurred from the day of settlement until the end of the month. Settlement that occurred on May 26 paid per diem for 6 days from 05/26 until 06/01 in the amount of $44.38/day.
Homeowners Insurance: A lender will require that a paid in full Homeowners Policy be in force at the time of settlement. Most buyers pay the insurance in full prior to closing, but it can be an option to pay the insurance bill at closing – $652.00
Reserves Deposited With Lender
These are payments into the buyer’s escrow account for future obligations. The lender will set the amount of each category that will be “paid forward”.
Homeowners Insurance: 3 months of the annual cost of the Homeowners Insurance – $53.34
Property Taxes: 5 months of the annual municipal taxes – $461.50
County Taxes: 5 months of the annual Delaware County Tax bill – $415.05
School Taxes: 12 months of the annual school tax bill – $5,234.76
Mortgage Insurance: when the borrower is putting less than 20% down there will be an escrow amount withheld for several months of Private Mortgage Insurance (PMI)
Homeowner Or Condominium Association Fees: if the property being purchased is part of a homeowners or condominium association an escrow amount equal to several months of association fees will be collected
Aggregate Adjustment: By law there are limits to the amount that can be placed into escrow at the settlement table on the buyer’s behalf. This adjustment, if applicable, reduces the escrow withholding to the prescribed limits – $1,039.75
Title Charges
Title insurance is protection against loss due to problems of “defects” in the title to a property. Title Insurance is required when purchasing a property involving mortgage financing. Title insurance rates are regulated and uniform within Pennsylvania, and based upon the purchase price of the home. Title insurance is not required when purchasing a home for cash, but recommended.
Title Service And Lender’s Title Insurance: the cost of the Title Insurance for the property – $2,138.75
Notary Fees: the fee paid to the Notary, the Closing Officer, who conducts the closing – $55.00
Closing Services Letter: the charge for the letter to the underwriters stating that the Title Company conducting the closing is in good standing, and that the settlement clerk will follow all the instructions contained in the lender’s mortgage package – $75.00
Government Recording And Transfer Charges
Government Recording Charges: the mortgage and the deed, as well as other documents such as a Power Of Attorney, condominium association documents associated with the closing, must be recorded at the County Courthouse. Each county establishes a base fee for recording these documents. In Delaware County the base amount is $80.50. The recording of a standard 4 page deed costs an additional $82.50. Mortgage documents are recorded at the cost of $4.00 per page. FHA mortgages are 12 pages in length, and Conventional mortgages are 18 pages in length – $233.00
Transfer Taxes: buyer and seller must pay a 1% transfer tax of which 0.5% is remitted to the State of Pennsylvania, and the other 0.5% is paid to the local municipality. – $3,100
Additional Settlement Charges
Conveyancing Fee: the brokerage charge for the processing or conveyancing of the transaction – $195.00
Adjustments For Items Paid By Or In Behalf Of Borrower
These items cover taxes that have been already paid by the seller that are being reimbursed. On the day of closing there will always be credits to the seller for tax payments that the seller has already paid. The buyer assumes the tax payments for the day after settlement forward. Municipal and Delaware County taxes operate on a calendar year basis – 01/01 to 12/31, and school taxes operate on a fiscal calendar that runs from 07/1 to 06/30 of the next year. Tax reimbursement are pro rated depending on the day of the settlement. In this example settlement which occurred on 05/26/2011 the buyer reimbursed the seller for Municipal and Delaware County taxes that had already been paid for the period of 05/27 until 01/01/2012 – the start of the the next tax year. School taxes had been paid by the seller through 07/10/2011 and were reimbursed by the buyer for that time period.
City/Town Taxes 05/27/11 to 01/01/2012 – $771.06
County Taxes 05/27/11 to 01/01/201 – $597.64
School Taxes 05/27/11 to 07/01/2011 – $485.75
Total settlement charges to the buyer in this example came to $14,924.72. This is an amount that is almost equal to 5% of the purchase price of the home, 4.8% to be exact. As a buyer you can expect closing costs of 5% to 6% of the purchase price of the home. Remember that these closing costs are in addition to the down payment that you have made. To offset closing costs it is not uncommon to ask the seller to provide a Seller Assist in order to reduce this amount.
