Understanding the Settlement Statement

After all you hard work you are now about to complete your home selling process. Before you hand over the keys to the home, though, there are just a few more steps you need to complete. One document you and your buyer will be dealing with during the home closing is the settlement statement (also called the closing statement). This is a document that lists the fees and charges that you, as the seller, and the buyer are required to pay in the housing transaction.

The settlement statement is prepared either by the buyer’s lender or the escrow agent. That person preparing the statement is required to follow pertinent federal guidelines outline in The Real Estate Settlement Procedures Act of 1974, the governing law for closing processing in housing transactions.

As the for sale by owner seller you’ll want to pay close attention to the settlement statement because it will list out the costs for which you and the buyer are responsible. In most cases, you and the buyer have already negotiated which of you will be paying which closing costs, but you must review the settlement statement to make sure these costs have been assigned to the correct party.

The settlement statement is usually 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 (you) must pay, first mortgage payoff amount, and total amount of cash the borrower (the buyer) must pay to the seller.

The second page of the settlement statement lists the settlement charges that you and the 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, lender’s inspection fee, assumption fee, and underwriting fees.

The mortgage lender may require the buyer to pay in advance some interest and insurance premiums. 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.

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 in the summary information on the first page of the settlement statement.