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How to Read a Settlement Statement: Real Estate Closing Help
HomeLight
Real Estate
4 years ago
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Disclaimer: Information in this blog post is meant to be used for educational purposes only, not as a substitute for legal advice. If you have a question about your settlement statement, HomeLight always encourages you to reach out to your own advisor.

It’s the moment when you can’t bear to see another piece of paper related to your home sale that you’ll receive the settlement statement — also known as a closing statement in real estate. Muster up the energy to go over it with fresh eyes, with the help of this line-by-line guide detailing how to read a settlement statement.

The dense document will reveal an exciting calculation: how much you’ll pocket from this sale at the end of the day, after accounting for fees, taxes, and other charges. Sellers can expect to pay between 6%-10% of the final sale price in commissions and closing costs, so it’s nice to see exactly where that money is going.

Source: (Free-Photos/ Pixabay)

What is a settlement statement?

A settlement statement is an itemized list of fees and credits summarizing the finances of an entire real estate transaction. It serves as a record showing how all the money has changed hands line by line.

It details the funds owed to real estate agents collecting commission from the sale, local governments owed taxes and recording fees, and final charges going to the lender.

At the bottom of the statement, you’ll see your net proceeds in the seller credit column, as well as what’s due from the buyer. Think of this document as a formal receipt for your home sale.

Does the seller get a closing statement?

Buyers tend to sign the bulk of the paperwork at closing, making some sellers wonder if they will even receive a settlement statement.

However, this is one document that holds relevance among all parties to the transaction. Both seller and buyer will receive a copy of the settlement statement at closing to review.

Who prepares the settlement statement?

Whoever is facilitating the closing — whether it be a title company, escrow firm, or real estate attorney — will be responsible for preparing the settlement statement.

What is the settlement statement called now?

The settlement statement is called just that: a settlement statement. Different versions of these documents are used from state to state. However, the settlement form developed by the trade group ALTA (American Land Title Association) is widely used across the nation for real estate transactions.

To clear up any confusion, the settlement statement you’ll receive is not an HUD-1. As of October 3, 2015, the Closing Disclosure has replaced the HUD-1 Settlement Statement and Truth-in-Lending Statement, combining them into one document.

Is a settlement statement the same as a closing statement?

Yes, a settlement statement is the same as a closing statement, though “settlement” is the formal term most likely to be used by the real estate industry.

Source: (Kelly Sikkema / Unsplash)

What’s the difference between a Closing Disclosure and settlement statement?

The Closing Disclosure contains almost the exact same information as the settlement statement, but it is specific to the borrower and their fees. The Closing Disclosure is issued by the buyer’s lender, and is designed to be compared to the Loan Estimate, which is the first estimate of fees the buyer gets when they borrow money.

Usually lenders will prepare the Closing Disclosure based on a copy of the estimated settlement statement sent by the closing agent. If the bottom line totals in the Closing Disclosure and settlement statements don’t match, that’s a major red flag that something is off.

Sellers do not typically receive a copy of the Closing Disclosure. In a cash transaction, there is no need for a Closing Disclosure since no one is borrowing money — however, buyer and seller would still receive a settlement statement summarizing their costs and any payouts.

What is an ‘excess deposit’ at closing?

A particular line item that causes confusion on the seller’s settlement statement is the “Excess Deposit.” What is an excess deposit, and who will receive the funds listed on that line?

In short, the excess deposit line represents any funds remaining from the buyer’s earnest money deposit after accounting for real estate agent commission fees.

Let’s say the buyer put down a $7,000 earnest money deposit on a $100,000 home. The listing agent and buyer’s agent are both owed 3% of the sale price, or a total of 6% ($6,000) at closing. That leaves $1,000 in “excess deposit” that will be paid back to the seller.

What does the seller’s closing statement look like?

A standard settlement statement has a column for the seller’s debits and credits on one side, a column for the buyer’s debits and credits on the other, and a description of the charge in the middle. Below we use the ALTA form as an example and break it down, line by line.

Source: (American Land and Title Association)

How to read the top of the settlement statement

At the top of the document (before you get to the portion that looks like a spreadsheet) you’ll see a few boxes for inputting information that records basic details about the transaction, such as the names of the buyer and seller, the property address, and the closing date.

Here’s a line-by-line breakdown:

  • File No./Escrow No. Think of the escrow number like a bank account number — it’s a series of digits specific to a single transaction between a buyer and seller.
  • Date & Time:Date and time of the closing, such as June 15, 2018 at 10 a.m.
  • Officer/Escrow Officer:The name of the officer facilitating the closing.
  • Settlement Location:The physical location where the closing is happening, such as an escrow firm or title company office
  • Property Address:The address of the property being sold
  • Buyer:First and last name of the buyer(s)
  • Seller:First and last name of the seller(s)
  • Lender:The name of the company financing the loan for the buyers
  • Settlement date:Aka closing date
  • Disbursement Date:When will everyone — including you as the seller — get paid? The settlement day is usually payday, and in most cases, you’ll be able to collect your home sale profit as soon as the ink dries on the final documents. (Pro tip: Pick a Monday through Thursday closing date during local banking hours for the speediest payment. Close on a Friday, and you may have to wait until Monday to receive payment.)
  • Additional dates per state requirements:Such as the tax payoff date or recording date (which sets the timer for ownership of the property).

Debits vs. credits on the closing statement

Like your typical budget balancing sheet, the settlement statement is organized into Debits (expenses) and Credits (deposits or increases) to the account. Other forms might have columns labeled as “Seller Charge” and “Seller Credit,” which mean the same thing. Now let’s get into the different spreadsheet sections on the closing statement.

“Financial”

The first part of the form, labeled “Financial,” details the price your buyer is paying, and then lists items that are debited against that price.

  • Sales Price of the Property:The final sales price, from which everything else will be deducted
  • Personal PropertyAny furnishings or personal property the buyer is paying for and you have agreed to sell them
  • Deposit including earnest moneyThe amount the buyer put down in good faith toward the home as “earnest money” after you accepted their offer
  • Loan AmountHow much the lender is financing toward the sale
  • Existing Loan(s) Assumed or Taken Subject to Only applicable in the case that the buyer is taking over the seller’s existing mortgage
  • Seller CreditAny repair credits or buyer’s closing costs the seller has agreed to pay
  • Excess DepositThe buyer’s earnest money deposit minus the agent commission (any remaining funds will go to the settlement agent or directly to the seller)

“Prorations/Adjustments”

Under the Prorations/Adjustments section, you’ll see how much you might owe in property taxes (school or county taxes) or homeowner association dues for the period leading up to the time you hand over the keys.

For instance, let’s say you close April 15, and the tax bill for January through the end of May is due June 1st. In that case, the seller would need to pay out their taxes from January through April 15 at closing. The buyer would cover April 16 through June 1, as well as the property taxes associated with the home moving forward.

Each locality may have unique taxes, like a garbage pick-up tax.

  • School Taxes from (date) to (date)Amount will depend on your closing date, local school tax schedule, and whether your municipality collects school taxes
  • County Taxes from (date) to (date)Amount will depend on your closing date and local county tax schedule
  • HOA dues from from (date) to (date)Depending on your closing date and HOA dues payment schedule
  • Seller CreditAny money the buyer owes you for prepaid taxes or payments

“Loan Charges to (lender co.)”

The next subhead, “Loan Charges’” details what the buyer’s mortgage lender is charging.  You, the seller, may have agreed to pay some or none of these costs. It all depends on what you negotiated with the buyer during the closing process.

  • PointsMortgage “points” are additional fees due at closing in the event that the buyer “bought down” their rate with an upfront lump sum payment
  • Application FeeCharged to the buyer for processing an application for a loan
  • Origination FeeCharged to the buyer for preparing and evaluating the loan
  • Underwriting feeCharged to the buyer for processing the loan
  • Mortgage Insurance PremiumMortgage insurance will be charged when the buyer is using a conventional loan and putting less than 20% down on the home
  • Prepaid InterestDaily interest accrued between the closing date and the date of the buyer’s first monthly mortgage payment is due from the buyer at closing

Other Loan Charges:

  • Appraisal FeeFees required by the lender for a home appraisal (usually covered by the buyer)
  • Credit Report Fee Charged for pulling the buyer’s credit report (usually covered by the buyer or in some cases, the lender)
  • Flood Determination Fee Charged to the buyer to get the government-obtained document showing whether the property is located in a flood zone
  • Flood Monitoring Fee Charged to the buyer for keeping tabs on a property’s flood status
  • Tax Monitoring Fee Paid to the tax service agency to notify the lender if the new owner falls behind on property tax payments
  • Tax Status Research FeeFor the agency to check in on and report any late tax payments to the lender

“Impounds”

At closing the buyer sets up an impound (or escrow) account that allows them to bundle the cost of their mortgage principal and interest, taxes, and mortgage insurance into one payment.

A buyer might be required to pay some charges, like homeowners insurance premiums or county taxes, in advance at closing.

  • Homeowners insurance ___mo @ $ ___/moThe frequency at which homeowners insurance is due, and how much is owed
  • Mortgage insurance ___mo @ $ ___/moThe frequency at which mortgage insurance is due, and how much is owed
  • City/town taxes ___mo @ $ ___/moThe frequency at which city/town taxes are due, and how much is owed
  • County taxes ___mo @ $ ___/moThe frequency at which county taxes are due, and how much is owed
  • School taxes ___mo @ $ ___/moThe frequency at which school taxes are due, and how much is owed.
  • Aggregate adjustmentA calculation to prevent the buyer’s lender from collecting more money from the buyer than is allowed by RESPA (the Real Estate Settlement and Procedures Act). (They can’t hold onto more than ⅙ of the new homeowner’s property tax and insurance payments).

“Title Charges and Escrow/Settlement Charges”

“Title Charges Escrow” or “Settlement Charges” are all fees charged by title or escrow companies for performing tasks like notarizing signatures.

  • Owner’s Title Insurance ($ amount) Provides insurance coverage to the new buyer in the event that unknown issues with the title emerge after closing
  • Owner’s Policy Endorsement(s)Tailors owner’s policy to the specific transaction
  • Loan Policy of Title Insurance ($ amount) Provides insurance coverage to the lender in the event that unknown issues with the title emerge after closing
  • Loan Policy Endorsement(s)Tailors lender’s title insurance policy to the specific transaction
  • Title Search The fee to search the public records for the property being sold
  • Insurance Binder Proof of temporary homeowners insurance until a full policy is issued
  • Escrow/ Settlement fee Charges for conducting the settlement and disbursing funds to the appropriate parties
  • Notary FeePayment to licensed notary for witnessing document signatures
  • Signing Fee Additional notary or document signing fees

“Commission”

The “Commission” section refers to real estate agent commissions amounting to 5%-6% of the sale price on average. Commission fees are typically the responsibility of the seller, but the total commission cut will be split between the buyer’s agent and listing agent.

  • Real Estate CommissionOwed to the listing agent (representing the seller)
  • Real Estate CommissionOwed to the buyer’s agent
  • OtherAny other commissions owed.

“Government Recording and Transfer Charges”

Government recording and transfer charges are fees levied by the county, state, or municipality for recording the deed and mortgages of the new owner.

  • Recording Fees (Deed) Charged for legally recording new deed
  • Recording Fees (Mortgage/Deed of Trust) Charged for legally recording new mortgage
  • Recording Fees (Other) Any additional recording fees owed
  • Transfer TaxCharged by local/state governments when a property changes hands
  • Transfer Tax There may be multiple transfer taxes owed, hence the second line

“Payoff(s)”

There’s a good chance that when you sell your house, it isn’t completely paid off and you still owe on the mortgage. You’ll use the sale of your home to pay off your remaining existing mortgage. The “payoff” section of the seller’s closing statement details those amounts and any associated fees or charges.

Lender: Payoff Lender Co.

  • Principal Balance ($ amount)Amount of loan remaining unpaid, minus interest and other charges
    • Interest on Payoff Loan ($ amount/day)Any interest owed through the day you pay off the loan
    • Additional Payoff fees/Reconveyance Fee/Recording Fee/Wire FeeFees associated with paying off the loan and getting released from your current mortgage

“Miscellaneous”

And finally, “Miscellaneous” refers to any remaining transaction fees and charges.

  • Pest Inspection FeeA pest inspection before closing is separate from the home inspection and checks for signs of a termite infestation among other pest issues
  • Survey FeeFee to professional surveyor for drawing of the property being sold
  • Homeowners insurance premiumThe lender will require proof of insurance
  • Home inspection feeFee to the home inspector for performing a visual inspection of the home to check for major issues
  • Home warranty feeCovers repair/replacement of big appliances for usually up to a year
  • HOA duesHomeowners association fees owed
  • Transfer fee to Management Co.Fees associated with transferring HOA membership from seller to buyer
  • Special Hazard DisclosureCost of obtaining hazard disclosure form
  • Utility PaymentOutstanding utility bills
  • AssessmentsIf your HOA requires annual property assessment, it may need to be paid upfront in a lump sum
  • School taxesUsually based on the home’s value
  • City/town taxesAny additional taxes owed to the city
  • County Taxes/County Property taxesAny additional taxes owed to the county
  • Buyer attorney feesFor any legal services performed on behalf of the buyer
  • Seller attorney feesFor any legal services performed on behalf of the seller

Subtotals

At the end of the settlement statement you’ll find a summary of the money that you owe (“Due from Seller”) and money that’s coming your way (“Due to Seller.”)

Totals

The “Totals” row represents your credit minus your debit column — and hopefully you’re well in the black!

Considering only 2.6% of all mortgage properties have negative equity as of Q1 2021, selling at a loss would be rare in the current market. A 2021 study we conducted found that it costs $31,000 on average to sell a home. But ideally your sale price covers the costs of all the transaction fees, your mortgage payoff, and then some, leaving you with a tidy sum to add to your bank account.

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