When you’re in the process of buying a house, the closing statement is a critical document that summarizes all the financial transactions related to the purchase. It’s essential to grasp the fees and expenses included in this statement to ensure you’re financially prepared for the big day. 

Before we can take an in-depth look at what fees you can expect on a closing statement, we first need to clarify closing costs.

 

What are Closing Costs?

Closing costs are any expenses over and above the property’s price. These encompass a wide range of fees and the total cost of fees depend on the type of transaction (cash vs. lender financed) and the location of the subject property.

The buyer and seller are subject to closing costs, which must be agreed upon before a real estate deal can be completed if there is anything that is unconventional or not listed in the purchase agreement.

 

What Is a Closing Statement for a House?

A closing statement, also known as a settlement statement, closing disclosure or a HUD-1 form (for older transactions), is a detailed financial document that outlines all the costs associated with the sale of a property. It serves as a summary of the financial transactions that occur during the real estate closing process.

 

What Is Usually Included in the Closing Statement?

A typical closing statement includes a breakdown of various fees and expenses related to purchasing a house. These may include:

      • Application Fees: Fees charged by the lender to process a mortgage application.
      • Appraisal Fees: Costs associated with appraising the property and conducting inspections for hazards or pests, if necessary.
      • Attorney Fees: If you use an attorney during the transaction, their fees will be part of the closing costs.
      • Brokerage Commissions: The seller typically pays Real estate agent commissions at closing but can indirectly affect the transaction.
      • Courier Fees: Paid for the transportation of paper documents.
      • Credit Report Fees: The charge for pulling credit reports from major credit bureaus.
      • Escrow Deposit: Some lenders require depositing into an escrow account to start the finalization process.
      • Flood Determination Fees: If the property is in a potential flood zone, a fee is paid to a certified flood inspector to determine if you would require flood insurance.
      • HOA Fees: If the property is part of a homeowners association, any dues or assessments may be listed.
      • Homeowners Insurance: Lenders often require you to prepay homeowners insurance for the first year.
      • Loan Amount: If you’re financing the purchase with a mortgage, this will represent the loan amount you’re taking.
      • Points: Also called discount points, these are optional upfront payments to the lender to reduce the interest rate on a loan.
      • Property Taxes: You may need to prepay property taxes for the portion of the year you’ll own the property.
      • Prorations: Costs such as taxes and utilities that are divided between the buyer and seller based on the closing date
      • Purchase Price: The agreed-upon price for the property.
      • Recording Fees: Charges for recording the deed and mortgage with the local government.
      • Title: Fees for examination and issuance of title policies protect against potential title issues.

 

Closing Statement Examples

There are typically two examples of closing statements.

In the seller’s closing statement, you’ll see the proceeds from the sale. This statement outlines the expenses the seller is responsible for, such as commissions and prorated property taxes and credits for any deposits made.

The buyer’s closing statement details the total amount due at closing. It lists the purchase price, loan amount, and all related expenses. This statement also shows any credits or deposits made by the buyer.

 

Tips for Understanding and Navigating the Closing Statement

      • Review It Thoroughly: Take the time to review your closing statement before the closing day carefully. Understand each item and don’t hesitate to ask questions if anything is unclear.
      • Seek Professional Help: If you’re unsure about the closing statement, consider hiring a real estate attorney or consulting with your real estate agent. They can provide valuable insights and guidance.
      • Budget for Closing Costs: Be prepared for the closing costs by budgeting for them in advance. Knowing the total amount due at closing can help you plan accordingly.
      • Be Prepared for Changes: The closing statement may change slightly leading up to the closing day, so be prepared for potential adjustments.

 

Understanding the fees and expenses listed on a closing statement is crucial when buying a house. By familiarizing yourself with the various potential expenses, you can confidently approach the closing process, knowing that you’re making informed financial decisions.