RESPA (the law that regulates the mortgage process) requires the settlement agent (escrow company or attorney) to issue the borrower an estimated HUD-1 Statement at least one day prior to the closing of the loan. Typically the borrower receives the estimated HUD-1 when he or she signs loan documents three-to-four days prior to closing. The HUD-1 is a standardized form that lists the final, actual terms and costs of your mortgage, including your interest rate, points and all one-time fees. The borrower should use the estimated and final HUD-1 Statements to verify that he or she is receiving a mortgage at the terms agreed to at the start of the process.
The first two pages of the HUD-1 outline the final, actual mortgage transaction terms and settlement costs (also known as closing costs). The third page of the HUD-1 compares the final, actual closing costs to the estimated closing costs provided in the Good Faith Estimate that the lender should have provided to you at the beginning of the mortgage process. Page three of the HUD-1 also indicates by how much the final closing costs can legally change as compared to the estimated costs provided in the Good Faith Estimate.
Certain closing costs such as lender fees (also known as origination fees or charges) and any discount points the borrower decides to pay, are NOT allowed to change from the initial estimate provided by the lender. Other non-lender closing costs such as the appraisal fee, escrow or attorney fee and title services fee cannot increase more than 10% from the initial estimate provided by the lender. Certain recurring closing costs, or costs that you will continue to pay after your mortgage closes, such as daily interest charges from the date your mortgage closes until the end of the month in which your mortgage closes and homeowner's insurance fees are allowed to change because the final, actual amounts for these costs vary depending on the date your mortgage closes.
The key items to review when comparing the HUD-1 and GFE are interest rate and settlement / closing costs such as the appraisal and escrow fees and title services costs. If the figures and information in the HUD-1 and GFE match or are relatively close, then you are all set to close your mortgage. If there are meaningful discrepancies between the HUD-1 and GFE and the final mortgage terms and costs have changed or increased significantly, this could be a sign that you are not getting the mortgage you thought you were and that you are potentially getting ripped off.
Review our HUD-1 Statement video tutorial
HUD-1 Statement Overview Video
HUD-1 Statement: https://www.consumerfinance.gov/ask-cfpb/what-is-a-hud-1-settlement-statement-en-178/