How The New Settlement Statement Increases Mortgage Transparency

When a home sale is closed, the buyer and seller both need a final statement summarizing the financial aspects of the transaction. Fortunately, a uniform disclosure statement is required when the transaction involves a federally regulated mortgage. Up until 2015, the HUD-1 Settlement Statement was the standard closing statement. A replacement form is now in use, providing information in a more transparent manner.

The newer statement is used for mortgage applications submitted on or after October 3, 2015. The replacement for the HUD-1 Settlement Statement is titled simply as the Closing Disclosure. The Closing Disclosure is one of two disclosure statements required during the mortgage approval process.

The Loan Estimate statement

The first mandatory statement is titled simply as the Loan Estimate. After you apply for a mortgage loan, the mortgage company must provide you with the Loan Estimate statement within three business days. The Loan Estimate provides information about the projected costs of your proposed loan, providing you the opportunity to compare mortgage options before proceeding further.

The Closing Disclosure statement

The settlement agent or the closing attorney is required to provide you with the Closing Disclosure statement no later than three business days before the closing date. The time period of three business days is intended to allow enough time for you to review all the details contained in the Closing Disclosure.

Parts of the HUD-1 Settlement Statement had the appearance of an accounting spreadsheet. In contrast, the Closing Disclosure is user-friendly and presents much of the essential financial information up front. The Closing Disclosure consists of five pages and should be kept for at least as long as you have the mortgage.

Settlement details

Your exact interest rate and loan amount are presented on page 1 of the Closing Disclosure. There is also a designation of whether the interest rate is a fixed rate. The first page of the Closing Disclosure includes the precise amount that you are to pay at closing. Your closing costs are summarized on page 1, and the closing cost details are presented on other pages of the statement.

The Closing Disclosure may show a proration of certain expenses for the year in which the home sale occurs. For example, the cost of property tax is likely to be allocated between the buyer and seller, based on how long each owned the home.

The Closing Disclosure statement is not required for reverse mortgages or a home equity line of credit. Contact a mortgage lender for more information on the process of obtaining a home loan.