What is a Settlement Statement in Real Estate Closing Costs?
Buying or selling real estate involves many moving parts, and one of the most critical documents you'll encounter during the closing process is the Settlement Statement. This document serves as your financial roadmap through the closing process, breaking down every dollar involved in your transaction.
Settlement Statement: A Settlement Statement is a detailed financial document that provides a complete breakdown of all costs, credits, and cash flows involved in a real estate transaction at closing. This statement shows exactly how much money is owed by or due to each party, including all fees, taxes, commissions, and other expenses associated with the property transfer.
Understanding Settlement Statements in Real Estate
The Settlement Statement has gone through several changes over the years. While older real estate professionals might remember the HUD-1 form, modern transactions typically use the Closing Disclosure or ALTA Settlement Statement. These documents protect both buyers and sellers by creating transparency in the transaction.
Components of a Settlement Statement
Let's break down what you'll find in your Settlement Statement:
Buyer's Costs
Your down payment amount
Loan origination fees and points
Property tax reserves
Title insurance premiums
Recording fees
Seller's Costs
Mortgage payoff amounts
Real estate agent commissions
County transfer taxes
Property tax adjustments through the closing date
Credits and Prorations
Your Settlement Statement will show credits like earnest money deposits and seller concessions. You'll also see prorated items such as property taxes and HOA dues, which are split between buyer and seller based on the closing date.
Types of Settlement Statements
The ALTA Settlement Statement has become a standard in the industry. This form clearly shows the financial details for both parties. The Closing Disclosure, required for most residential mortgage transactions, must be provided three business days before closing.
Reading Your Settlement Statement
Take time to review each line item on your Settlement Statement. Look for:
Accurate loan amounts
Correct property tax calculations
Proper credit for your earnest money deposit
Accurate listing of any seller concessions
Common Issues to Watch For
Math errors can happen. Double-check all calculations, especially prorated items like taxes and utilities. If you spot discrepancies, bring them up with your closing agent right away.
Tips for Reviewing Your Settlement Statement
You should receive your Settlement Statement before closing day. Create a checklist:
Compare figures to your loan estimate
Verify all personal information
Check spelling of names
Confirm property address details
Settlement Statements in the Closing Process
Keep your Settlement Statement safe - you'll need it for tax purposes and future reference. This document proves your property purchase price and closing costs, which might be tax-deductible.
Digital Evolution
Many closings now happen electronically, with digital Settlement Statements becoming standard practice. This makes it easier to store, access, and share these important documents.
Working with Professionals
Your closing agent coordinates with all parties to create an accurate Settlement Statement. They work with the title company, lender, and real estate agents to gather correct figures for every line item.
Making Informed Decisions
Your Settlement Statement represents the final accounting of your real estate transaction. Take time to review it carefully. Bellhaven Real Estate's experienced agents can guide you through each line item, ensuring you understand exactly where every dollar goes during your real estate transaction.