Important points
– The settlement statement itemizes all fees, credits, taxes, and loan details for the home purchase or sale, giving both parties a complete financial breakdown.
– Closing disclosures are used in most financed home purchases, while settlement statements are common in seller-to-cash transactions.
– Buyers typically receive a closing disclosure three days before closing and sellers receive a financial statement just before or on the day of closing.
A settlement statement is a detailed itemized breakdown of all costs, credits, and dollars exchanged during a real estate transaction. This serves as a final financial snapshot for both buyer and seller, outlining the amount the buyer will pay at closing and the amount the seller will receive after all fees are deducted.
Although the term “settlement statement” is still widely used, most mortgage transactions now rely on a closing disclosure. Older formats like the HUD-1 are reserved for reverse mortgages and certain cash transactions.
Understanding how settlement statements work can help you avoid surprises at the closing table. Whether you’re closing in Orlando, Florida, Los Angeles, California, or Phoenix, Arizona, this Redfin guide will explain what a settlement statement is and how to understand it.
How a settlement document works
A settlement statement summarizes all the financial elements of a home sale into one clear document. This includes the purchase price, loan details, earnest money, fees, taxes, pro-rated expenses, and credits negotiated between the buyer and seller.
Here’s how the settlement statement works at closing:
The closing agent aggregates all fees and credits from lenders, buyers, sellers, and service providers. The Buyer’s section outlines the total cost and exact cash-to-closing amount. The seller’s section calculates the total credits (such as the sales price) minus costs (such as fees and taxes) to determine the final net revenue. Your lender and closing agent will review the documents for accuracy. Both parties sign and the transfer of funds and property ownership is completed.
Contents stated in the settlement record
A standard financial statement is divided into buyer and seller sections, each listing the financial items that make up the financial statement. All charges and payments are recorded in one place, from purchase prices and loan fees to taxes, prorated costs, and final credits.
Purchase price and loan details
This section includes:
credit and debit
Each item on the financial statement will appear as one of the following:
Debit: Money owed Credit: Money received or paid on your behalf
This includes earnest money deposits, daily rent, seller concessions, and tax and utility adjustments.
Real estate related expenses
Fees related to real estate valuation and insurance:
Appraisal fee: A fee paid to a certified appraiser who determines the market value of a home. Home inspection fee: The cost of hiring a professional inspector to evaluate the condition of your home and identify problems. Title Search and Title Insurance: A title search confirms legal ownership, and title insurance protects against future ownership disputes. Survey fee (if necessary): The cost of having a surveyor confirm the boundaries of your property and check for encroachments and easements.
>> Read: The cost of owning a home
taxes and government fees
These vary by location but may include:
Transfer Tax: A tax imposed by a state or local government when ownership of real property changes. Recording Fee: A fee charged by a local government to officially record a sale and update public property records. Prorated property taxes: The buyer’s share of the annual property taxes of owning a home. It will be split between the buyer and seller at closing. Local government fees: Depending on your location, fees may include fees for utilities, certification, or required inspections.
Broker fees and escrow fees
This section provides an overview of the professional fees associated with the transaction.
Real estate agent commission: A commission paid to the agent representing the buyer and seller, usually based on a percentage of the home’s sales price. Escrow or Closing Fee: Costs charged by the escrow or closing company for managing the transaction, holding the funds, and ensuring all documentation is properly completed. Attorney’s Fees (if applicable): Required in some states, the cost of hiring a real estate attorney to review documents and represent you during the transaction.
prepaid items
These upfront costs help set up the buyer’s loan.
Prepaid Mortgage Interest: Interest paid in advance to cover the period from mortgage closing to the full payment of the first mortgage. Homeowner’s insurance premium: The upfront cost of insuring your home against damage or loss and is usually required before closing. Mortgage insurance premium: Required if your down payment is below a certain threshold and protects the lender in case of default. Escrow deposits for taxes and insurance: Funds collected at closing to set up an escrow account to pay future property taxes and insurance.
Settlement Statement and Closing Disclosure
Although the terms “settlement statement” and “closing disclosure” are sometimes used interchangeably, they apply in different circumstances. Although closing disclosures are required for most mortgage transactions, closing statements appear for certain cash purchases, reverse mortgages, and non-TRID loans.
When to use the document Is it required by law? Notes Closing Disclosures Most financed home purchases Yes (for borrowers) Must be provided to the buyer at least three business days prior to closing. Replaced HUD-1 in most mortgages. HUD-1 Reverse Mortgages, Certain Cash Transactions, Certain Non-TRID Loans Yes (in certain scenarios) Older format continues to be used when closing disclosures are not applicable. Financial Report/Closing Statement Often to the seller in many cash purchases, commercial transactions, and financing transactions. Used to outline final buyer/seller costs when no closing disclosure is required or when the seller requires a separate breakdown.
>> Read: Settlement Statement and Closing Disclosure
Who will provide the settlement document?
The parties responsible for preparing the settlement statement vary by state and type of closing. Most transactions are issued by one of the following:
Title company Escrow company Closing attorney Your lender (for closing disclosures)
When you receive the payment statement
When a settlement statement is provided depends on the type of transaction. If you have a mortgage, federal disclosure rules determine when you must file closing documents. For cash purchases and other non-loan closings, timing is usually more flexible and depends on the title or escrow company.
Buyers with a mortgage: Closing disclosures should be received at least three business days before closing. Seller: Seller settlement statements are typically received one day before or on the closing date of the transaction. Cash buyers: The timing is more flexible, so you typically receive a settlement statement shortly before closing.
How to access financial statements after closing
Settlement statements are important legal and financial records that may be needed for taxes, refinances, proof of sales, and more. Copies can typically be obtained from:
Your lender (for closing disclosures) Your closing or escrow company Your real estate agent Your title company Your online closing portal (if used)
If you lose your copy, one of the parties listed above will usually provide you with a replacement.
Frequently Asked Questions: What is a real estate settlement statement?
1. What is the purpose of the settlement document?
Your settlement statement provides a clear itemized breakdown of all costs and credits in your transaction. Its purpose is to provide both buyers and sellers with a transparent record of where every dollar is going, allowing each party to fully understand the financial aspects of the closing.
2. Is a settlement statement the same as a closing disclosure?
Not always. Most mortgages require closing disclosures, which must be disclosed to the buyer at least three business days before closing. The settlement statement is a more common document often used in cash transactions or provided to sellers, and the older HUD-1 form is still used in special cases such as reverse mortgages.
3. Is settlement the same as closing?
Although they are closely related, they are not exactly the same. Closing refers to signing the documents and transferring ownership. Settlement is the financial part of the process, where all costs, credits, and payments are reconciled to complete the transaction.
4. When should the seller receive the settlement statement?
Sellers typically receive a settlement statement shortly before or on the day of closing, depending on how the title or escrow company prepares the closing documents and coordinates the transaction.
