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You're about to cross the finish line in your home buying or selling process. There are just a few more steps that you need to complete before you hand over the keys, or get the keys, to the home. During the home closing, the primary document you and your buyer or seller will be dealing with is the settlement statement (also called the closing statement). This is a document that lists out the fees and charges that each party is required to pay in the housing transaction.
The settlement statement is prepared either by the buyer's lender or the settlement agent. Regardless of who prepares the statement, that person is required to follow pertinent federal guidelines. The Real Estate Settlement Procedures Act of 1974 is the governing law for closing processing in housing transactions.
It is important that you pay close attention to the settlement statement because it will list out the costs for which you, and the seller or buyer, are responsible. Most likely, you and the buyer or seller have already negotiated which of you will be paying which closing costs. You must review the settlement statement to ensure these costs have been assigned to the correct party.
Usually, the settlement statement is broken down into two pages. The first page summarizes payments to be made in the housing transaction. Included is the sales price of the home, settlement charges that the borrower must pay, tax adjustments, settlement charges the seller must pay, first mortgage payoff amount, and total amount of cash the borrower must pay to the seller.
The second page of the settlement statement lists the settlement charges that you and the seller or buyer are required to pay. This page is where your previous closing cost negotiations will appear. Your sales contract should also list these charges and to whom the charges were assigned. There will be a group of charges that are related to processing the mortgage, whether it is a new mortgage or an assumed one. Typical fees are the loan origination fee, appraisal fee, lenders inspection fee, assumption fee, and underwriting fees.
The mortgage lender often requires some interest and insurance premiums to be paid in advance. Usually paid by the buyer, these fees are also listed on the second page of the settlement statement. Other mortgage related costs include reserves that are deposited to set up an escrow account. These charges are assigned to the buyer.
Another group of fees included in the settlement statement are related to guaranteeing the legitimacy of the title: title search, title insurance, document preparation, notary fees, and attorney fees. Refer to the sales contract for the agreements made pertaining to these fees.
Government fees include recording fees, tax and stamps which are required by law, and in some cases may be negotiated in the sales contract.
The final group of charges is miscellaneous charges that were not included in previous sections of the settlement statement. For example, a pest inspection requested by the buyer is a miscellaneous charge.
The settlement charges are totaled and entered on the first page in the summary information on the first page of the settlement statement.
Download a copy of the US Department of Housing and Urban Development's (HUD) booklet BUYING YOUR HOME - Settlement Costs and Helpful Information"
Additional Closing U. Resources
ABOUT THE AUTHOR: T. J. Madigan has been established in online business since 1998 and is director of a number of successful online projects. This article has been edited for clarity and to correct grammatical errors.
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