The HUD1 Settlement Statement is a document that lists all charges and credits to the buyer and to the seller in a real estate settlement. In transactions that do not include a seller, such as a refinance loan, the settlement agent may use the shortened HUD-1A form.
On August 1, 2015 the HUD 1 will be replaced by the new Closing Disclosure and the new Loan Estimate will be replacing the Good Faith Estimate and the Trust in Lending Disclosure.
Closing Disclosure:Consumers will receive this form three business days before closing on a loan. It replaces the final Truth in Lending statement and the HUD-1 settlement statement, and provides a detailed accounting of the transaction.
- • The new form is now 5 pages a long instead of 3 pages
- • This form must be given to the borrower 3 business days before closing instead of 24 hours before closing
- • First page of the Closing Disclosure carries much of the same information as the Trust in Lending form does
- • Page 2 and 3 resemble the HUD 1 explaining fee’s and closing cost
- • Explaining more in detailed about cash to close
- • Page 4 has a great easy to read section explaining escrow
- • Last page provides a quick summary of the loan calculations, contact information and other disclosures
Loan Estimate: This form will be provided to consumers within three business days after they submit a loan application. It replaces the early Truth in Lending statement and the Good Faith Estimate, and provides a summary of the key loan terms and estimated loan and closing costs. Consumers can use this new form to compare the costs and features of different loans.
- • Lenders must provide the borrower the Loan Estimate 3 business days after application is submitted by the consumer
- • Page 1 will provide the borrower with with a breakdown of loan terms, projected payments and closing cost
- • Page 2 breakdowns the closing cost details
- • Page 3 explains additional information about the loan and also shows your APR.
You can familiarize yourself with these new forms on the website of the Consumer Financial Protection Bureau (CFPB), which has taken over administration of the Real Estate Settlement Procedures Act (RESPA) from HUD. Just go to
CFPB.gov and type in the name of the forms in the search box. Current forms can be very confusing to borrowers; and they are lacking important information like cash needed to close and total principal, interest, taxes, and insurance (PITI) payment. There is not even a place for a signature on the existing form.
NAR is recommending that all forms are ready seven days prior to closing, so when you go into the three-day period, you don’t have to make any changes. Because making changes as the clock winds down comes with a cumbersome set of hurdles. During this time period no APR changes, program changes, interest rate, loan amount, lender charges, and affiliate charges are allowed to change. If changes do occur, the three-day waiting period starts anew.
What this means is, you and the other settlement service providers, including the lender and title agent, have to get everything ready and figured out earlier than you have to today. Buyers and sellers have to be cooperative as well, because if last-minute changes are made, a new three-day waiting period kicks in, at least in some cases.
The CFPB’s goal in making these changes is to increase transparency for consumers. Currently, it is very common for documents to be sent to the title company one to two days in advance and the loan to close immediately afterward. This new waiting period will force borrowers, lenders, and
real estate agents to alter their timelines and rework their processes to ensure a smooth and stress-free closing. This will be a challenge for everyone involved and used to having documents ready the day before or even the morning of settlement.
These new forms help consumers better understand key information:
- • Risk factors: Because information on the CFPB forms is disclosed in an easy-to-read format, consumers can more easily identify risky loan features. In addition, lenders will have to tell homebuyers about prepayment penalties, larger-than usual periodic payments, and complicated loan structures.
- • Short-term and long-term costs: By putting the important information in a clearer format than the current forms and in plain language, both the Loan Estimate and Closing Disclosure more easily explain the total costs of the loan. This includes an important breakdown of the loan amount, the principal and interest payment, and how it could change, and closing costs.
- • Monthly payments: The CFPB forms state in bold font what a consumer’s monthly principal and interest payments will be. If it is an adjustable-rate loan, the forms say the projected minimum and maximum payments over the life of the loan.
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