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What is a closing statement?

Two people going over a closing agreement
AaronAmat/Getty Images
Two people going over a closing agreement
AaronAmat/Getty Images

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A closing statement is a form used in a real estate transaction that includes an itemized list of all the buying or selling costs associated with that transaction. It’s a standard element of home sales, especially those that involve mortgages, and refinancings.

As the name implies, this summary of expenses is given to buyers and sellers shortly before the close of their transaction. “These forms exist to prevent any financial surprises at the closing table,” says Boris Fabricant, Licensed Associate Real Estate Broker at Compass Real Estate. “They typically contain the loan terms, projected monthly payments, and all the closing costs required.”

What is a closing statement?

The closing statement, also called a closing disclosure or settlement statement, is essentially a comprehensive list of every expense that either the buyer and seller must pay to complete the purchase of a home (or whatever the property is).

Costs listed on this sheet include mortgage insurance, property tax deposits, loan origination fees, appraisal fees, inspection costs and real estate agent commissions. The sheet might also itemize fees to pull the borrower’s credit report, title search fees and fees for services provided by lawyers, notaries and closing agents. Any escrow funds required on the date of closing will also be listed, as well as any deposits — such as earnest money – the borrower has already made.

The closing statement typically lists fees in two columns, one detailing the buyer’s expenses and one detailing the seller’s expenses. The amount of cash the buyer must give the seller has its own entry at the bottom of the document. In addition to these combined settlement statements, there can be separate ones as well, usually for sellers.

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Closing statements are provided in most types of mortgage transactions, except for certain manufactured-home loans (manufactured homes are often considered personal property, not real property). They are not issued for home equity lines of credit (HELOCs) either.

Closing statement vs HUD-1 settlement statement

Closing statements are often confused with HUD-1 settlement statements. They’re distinct documents, though they serve similar purposes: to be a balance sheet of closing costs.

If you purchased a home on or before October 3, 2015, you probably received a HUD-1 settlement statement detailing buyer and seller costs. If you closed after that date, though, you probably receive a closing statement instead of a HUD-1 form. And that’s what home buyers and sellers generally receive today.

While the HUD-1 and closing statements contain much of the same information, including the property price, mortgage interest rate, fees and credits, the closing statement was designed to be less overwhelming and easier to understand. It has replaced the HUD-1 for most residential real estate transactions.

However, HUD-1s are still used for reverse mortgages and some mortgage refinancings.

What does the closing statement contain?

Closing statements break down all the expenses the buyer and seller are responsible for and have incurred throughout the transaction, from the big-ticket items (the home’s selling price) down to the smallest charges (a notary’s fee). Commonly included:

Expense What it means
Loan amount The sum total of the mortgage or home loan
Interest rate The interest rate charged by the lender
Monthly payment Detailed monthly payment amounts, including how much you’ll pay toward principal and interest
Loan origination fees If the mortgage carries an origination fee
Property tax deposits Any payments made toward local property taxes
Appraisal fees The amount charged by the appraiser for their evaluation of the property
Credit report fees The cost of running the buyer’s credit report
Inspection costs The charges for a home, pest or other sort of inspection to assess the property’s condition
Escrow funds Any escrow moneys required to be deposited at closing
Title fees Fees associated with title searches and title insurance
Commissions The compensation sums (typically a percentage of the purchase price) earned by the buyer’s or seller’s Realtor or real estate agent
Broker fees Compensation for a mortgage broker, if the buyer used one
Attorney fees Payment for the real estate attorneys who prepared loan documents, purchase agreements and other work associated with the transaction

If the seller is paying off their own mortgage with the proceeds, any costs and other details of that loan will be included too.

Preparing and receiving the closing statement

Closing statements are prepared by closing agents, who help facilitate the sale of a property to a buyer. Typically, closing agents are real estate attorneys, title companies or escrow officers.

Unlike the HUD-1, which closing agents generally provided to buyers and sellers on the day of a real estate closing, closing statements must be issued at least three business days before closing. This deadline allows all parties to review the form and ensure the information it contains is accurate. Not just the sums involved and agreed-upon, but also who pays what.

Whether you’re buying or selling the home, it’s essential to review your closing statement once you receive it, to make sure it accurately reflects the terms of the purchase agreement — especially the contract’s delineation or assignment of any particular costs. Those financing the home purchase should make sure all the mortgage-related fees, terms and other details dovetail with the statements and documents from the lender.

If you see a mistake on your closing statement or have questions about an itemized cost, reach out to the closing agent immediately.

Final word on closing statements

The closing statement marks the beginning of the end of a real estate transaction. This summary of all the charges and fees involved should contain no surprises; in fact, knowing how much you’ll be required to pay at closing can offer peace of mind.

Even so, people are often shocked when they see how the closing costs mount up. That’s why it’s important to examine the statement carefully, and to have a cushion of ready money available to meet any unexpected expenses. Then, it’s on to successfully sealing the deal.