Computing the prorations and charges The following list illustrates the various prorations and other amounts to be included in a settlement statement, prepared by the Closing Agent at the Title Company or the lawyer for the buyer or seller:
- Closing date: June 15
- Commission: 6% (0.06) x $230,000 sales price = $13,800
- Seller’s mortgage interest: 7% (0.07) x $115,400 principal due after June 1 payment = $8,078 interest per year; $8,078 + 360 days = $22.44 interest per day; 15 days of accrued interest to be paid by the seller x $22.44 = $336.60 interest owed by the seller; $115,400 + $336.60 = $115,736.60 payoff of seller’s mortgage
- Real estate taxes (estimated at $3,450): $3,450 + 12 months = $287.50 per month; $287.50 + 30 days = $9.58 per day
- The earned period, from January 1 to and including June 15 (5 months, 15 days): $287.50 x 5 months = $1,437.50; $9.58 x 15 days = $143.70; $1437.50 + $143.70 = $1,581.20 seller owes buyer
- Transfer tax ($0.50 per $500 of consideration, or fraction thereof): $230,000 ÷ $500 = 460; 60 x $0.50 = $230 transfer tax owed by seller
- Buyer’s tax reserve payment: $2,012.50 paid to separate account (7/12 of the anticipated county real estate taxes of $3,450)
- Buyer’s one-year hazard insurance payment: $3 per $1,000 of appraised value ($230,000 + 1,000 x 3 = $690 paid in advance to insurance company) Buyer’s first full payment, including July’s interest due (15 days x $25.56 = $383.40) on August 1
- The seller’s loan payoff is $115,736.60. The seller must pay an additional seller’s fee of $25 to record the mortgage release, as well as $100 for a pest inspection and $200 for a survey, as negotiated between the parties.
The Uniform Settlement Statement
The Uniform Settlement Statement (HUD-1) used for most residential closings consists of three pages. Sections J and K on the first page are a summary of the borrower’s and the seller’s transactions. At the bottom of the first page, line 303 indicates the total amount of cash due from (or to) the borrower. Line 603 indicates the cash to (or from) the seller.
The second page itemizes the settlement charges to be paid from the borrower’s funds or from the seller’s funds at settlement. A number of the costs to the buyer must correlate to the GFE that the buyer received within three business days of loan application. All items in the borrower’s column are added up and transferred to line 103 on the first page. All items in the seller’s column are added up and transferred to line 502 on the first page.
