What is a settlement statement in real estate?
Key Takeaways
– A settlement statement specifies all details of fees, credits, taxes and loans when purchasing or selling a home, giving both parties a complete financial overview.
– Most financed home purchases use the Closing Disclosure, while settlement disclosures are common for sellers and cash transactions.
– Buyers typically receive the Closing Disclosure three days before closing, and sellers receive their Settlement Disclosure shortly before or on the day of closing.
A settlement statement is a detailed, itemized record of all the fees, credits, and dollars exchanged during a real estate transaction. It acts as the final financial snapshot for both the buyer and seller, showing what the buyer will owe at closing and what the seller will receive after all fees have been deducted.
Although the term “settlement statement” is still widely used, most mortgage transactions now rely on the Closing Disclosure. Older forms like the HUD-1 are reserved for reverse mortgages and certain cash deals.
Understanding how a settlement statement works will ensure there are no surprises at the closing table. Whether you’re getting closer Orlando, FL, Los Angeles, CAor Phoenix, AZthis Redfin guide walks you through what the settlement statement means and how to understand it.
How a Settlement Statement Works
A settlement statement bundles all financial components of a home sale into one clear document. It includes the purchase price, loan details, deposits, fees, taxes, prorated expenses and the like credits negotiated between buyer and seller.
Here’s a settlement summary at closing:
- The closing agent collects all fees and credits from the lender, buyer, seller and service providers.
- The buyer’s part provides an overview of the total costs and the exact costs to be settled in cash quantity.
- The seller’s part calculates the total credit (such as the sales price) minus fees (such as commissions and taxes) to determine the final amount net proceeds.
- The lender and closing agent Check the document to ensure its accuracy.
- Both parties signwhich completes the transfer of funds and ownership of real estate.
What does a settlement statement say?
A standard settlement statement is divided into buyer and seller sections, with each side listing the financial line items that make up the closing. From the purchase price and loan costs to taxes, proration fees and closing credits, it captures all costs and payments in one place.
Purchase price and loan details
This section includes:
Credits and debits
Each item on a settlement statement is shown as:
- Debit: money owed
- Credit: money received or paid on your behalf
This includes deposits, prorated rent, vendor concessions, and adjustments for taxes or utilities.
Real estate-related costs
Costs associated with valuing and insuring the home:
- Valuation fee: A fee paid to a licensed appraiser who determines the market value of the home.
- Home inspection costs: The cost of hiring a professional inspector to assess the condition of the home and identify any problems.
- Search title and title insurance: A title search confirms legal ownership, and title insurance protects against future ownership disputes.
- Research costs (where necessary): The cost of having a surveyor confirm property boundaries and check for encroachments or easements.
>> Read: Costs of owning a home
Taxes and government fees
These vary by location but may include:
- Transfer taxes: Taxes imposed by state or local governments when a property changes hands.
- Withdrawal fees: Local government costs to officially record the sale and update public property records.
- Prorated property taxes: The buyer’s share of property taxes for the portion of the year he will own the home, divided between buyer and seller at closing.
- Municipal costs: Local government fees, which may include utility fees, certificates, or required inspections, depending on location.
Brokerage fees and escrow fees
This section describes the professional fees involved in the transaction:
- Brokerage commissions: Fees paid to the agents representing the buyer and seller, usually based on a percentage of the home’s sales price.
- Deposit or settlement costs: Fees charged by the escrow or closing company for administering the transaction, holding funds, and ensuring all documents are completed correctly.
- Attorney fees (if applicable): Cost of hiring a real estate attorney to review documents or represent you during the transaction, required in some states.
Prepaid items
These upfront costs help set up the buyer’s loan:
- Prepaid mortgage interest: Prepaid interest to cover the period between closing and your first full mortgage payment.
- Homeowners insurance premiums: The initial cost of insuring the home against damage or loss, usually required before closing.
- Mortgage insurance premiums: Payments required if your down payment is below a certain threshold, protecting the lender in the event of default.
- Escrow deposits for taxes and insurance: Funds collected at closing to establish your escrow account that will be used to pay future property taxes and insurance premiums.
Settlement Statement vs. Closing Statement
Although the terms “settlement statement:” and “Closing disclosure” are sometimes used interchangeably, they apply to different situations. The closing disclosure is required for most mortgage transactions, while a settlement statement occurs on certain cash purchases, reverse mortgages, and non-TRID loans.
| Document | When used | Required by law? | Comments |
| Closing Disclosure | Most financed home purchases | Yes (for borrowers) | Must be provided to buyer at least 3 business days prior to closing; replaced the HUD-1 for most mortgages. |
| HUD-1 | Reverse mortgages, some cash transactions, certain non-TRID loans | Yes (in specific scenarios) | Older form is still used when a closing disclosure is not applicable. |
| Settlement statement/closing statement | Lots of cash purchases, commercial deals and often sellers in financed transactions | No | Used to display costs to the final buyer/seller when closing information is not required or when sellers require a separate breakdown. |
>> Read: Settlement Statement vs. Closing Statement
Who provides the settlement statement?
The party responsible for preparing the settlement statement varies by state and the type of closing. In most transactions it is issued by one of the following companies:
- The title company
- The escrow company
- A closing lawyer
- Your lender (for the final statement)
When you receive the settlement statement
When a settlement statement is provided, it may vary depending on the type of transaction. If you use a mortgage, federal disclosure rules determine when closing documents must be delivered. For cash purchases and other non-loan closings, the timing is usually more flexible and depends on your title or escrow company.
- Buyers with a mortgage: Receive the closing statement at least three business days before closing.
- Salespeople: Typically receive the seller’s settlement statement one day before closing or later closing day.
- Cash buyers: Typically receive their settlement statement shortly before signing because the timing is more flexible.
How to Access Your Settlement Statement After Closing
Your Settlement Statement is an important legal and financial document that you may need for taxes, refinancing, purchase and sale receipts, and more. You can usually request a copy from:
- Your Lender (for closing information)
- Your closing or escrow company
- Your real estate agent
- Your title company
- Your online closing portal (if used)
If you have lost your copy, one of the above parties can usually arrange a replacement.
Frequently Asked Questions: What is a settlement statement in real estate?
1. What is the purpose of the settlement statement?
The settlement statement provides a clear, itemized overview of all costs and credits in the transaction. Its purpose is to give both the buyer and seller a transparent overview of where every dollar is going, so that each party fully understands the financial side of the closing.
2. Is a settlement statement the same as a closing statement?
Not always. Closing disclosure is required for most mortgage loans and must be provided to buyers at least three business days before closing. A settlement statement is a more general document often used in cash transactions or provided to sellers, and the older HUD-1 form is still used in specific cases, such as reverse mortgages.
3. Is settlement the same as closing?
They are closely related, but not exactly the same. Closure refers to the signing documents and the transfer of ownership. Settlement is the financial part of the process, where all charges, credits and payments are reconciled to complete the transaction.
4. When should a seller receive a settlement statement?
Sellers typically receive their settlement statement shortly before closing or on the date of closing day of closingdepending on how the title or escrow company prepares the final documents and settles the transaction.
