Your guide to the HUD-1 settlement statement (© Ryan McVay/Getty Images)

© Ryan McVay/Getty Images

A pile of paperwork thuds onto the table at the closing of any home sale or refinance. One of the key documents is the HUD-1 (PDF), a government-mandated settlement statement that dissects the costs of the deal. It also assures borrowers that they are receiving the loan upon which they agreed.

The form's name refers to the Department of Housing and Urban Development, which introduced its current version in January 2010. (Bing: What is a Federal Housing Administration loan?)

Depending on local customs, buyers, sellers and borrowers might receive more than one HUD-1 before closing so they can track new information and changes as the loan progresses. The final HUD-1 might not be issued until the transaction is closed and recorded and all of the charges and prepaid interest are known, says Phyllis Yanagihara, a certified senior escrow officer at Master Escrow in Glendale, Calif.

Here's a look at the form's main sections.

Basic information about the loan
Sections B through I of the settlement statement describe transaction's parameters, including the name and address of the buyer, seller and lender; the property address; the name of the settlement company; and the closing date.

Borrowers should pay attention to the loan type, says Kimberly Green, operations director at Quicken Loans in Detroit.

"If you're signing up for (a Federal Housing Administration-insured) loan, you want to make sure that first box that's checked is 'FHA,'" she says, "whereas if you think you're getting a conventional loan and the FHA box is checked, definitely question it."

Summaries of borrower's and seller's transactions
Section J summarizes the buyer's or borrower's costs. The figures in fields 100 to 120 are sums due from the buyer or borrower, with line 120 being the total. The figures in fields 200 to 200 are amounts credited to the buyer or borrower, with line 220 including the total. Figures in fields 300 to 303 pull the totals from line 120 and 220 to calculate line 303, the total amount due to or from the buyer or borrower at closing.

Section K shows sums due to the seller, reductions in the amount due to the seller and the total amount due to or from the seller.

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Some states require separate settlement statements for the buyer and seller. Other states allow both sides to be shown on one statement, Green says.

"If you're a buyer, and the seller side is blank, it's not a concern," she says.

Read:  A borrower's guide to the mortgage application

Settlement charges
This section on Page 2 lists:

  • Real-estate brokerage fees
  • Lender fees
  • Prepaid charges, such as interest and mortgage insurance
  • Escrow or impound deposits
  • Title-insurance fees
  • Government recording fees and transfer taxes
  • Other settlement charges. These are a catch-all used for expenses such as a home inspection or pest-control report.

The lender sets aside escrow deposits, if there are any, to pay the buyer's or borrower's property taxes and homeowners-insurance premiums. Green says that lenders typically collect enough for a cushion in case the amounts increase, but they aren't allowed to pad the account.

"You want to make sure there are sufficient funds to be able to pay those (expenses) when they're due," she says.

Comparison of Good Faith Estimate and HUD-1 charges
Page 3, on which this section appears, is "the best page and the most important" for borrowers, Green says. The first column in the top three sections recaps the Good Faith Estimate, which discloses the buyer's or borrower's loan charges. The second column recaps the HUD-1 charges, allowing a line-by-line comparison of the estimates to the actual costs.

Read:  Your guide to the Good Faith Estimate

The total, shown at the bottom of the second chart as a dollar amount and percentage, discloses the difference between the GFE and HUD-1 with respect to costs that can't increase or can't increase by more than 10%. If the lender miscalculated or didn't properly disclose these charges, the buyer or borrower must receive a refund for the overage, Yanagihara says.

"It does happen on occasion," she says.

Loan terms
The final section recaps the terms of the loan, including the initial loan amount, interest rate, monthly payment of principal, interest and mortgage insurance, if any. The questions and check boxes disclose whether the rate can rise, whether the loan balance or payment can increase and whether the loan has a prepayment penalty or balloon payment. Other details should be included if any "yes" boxes are checked.