Key takeaways
- A closing statement is a form used in real estate transactions that itemizes all the buying or selling costs associated with the transaction.
- Legally, it must be given to homebuyers and sellers at least three business days before the closing.
- It's important to carefully review the closing statement and address any discrepancies or questions before the closing takes place.
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.
As the name implies, this summary of expenses is given to homebuyers and sellers, or homeowners refinancing their existing mortgage, shortly before the close of their transaction. “These forms exist to prevent any financial surprises at the closing table,” says Boris Fabricant, a broker with Compass in New York City. “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 the buyer and/or seller must pay to complete the purchase of a home.
Costs listed on this sheet might include mortgage insurance, property tax deposits, loan origination fees, appraisal fees, inspection costs and real estate agent commissions. It could 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. The amount 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. Bankrate Insight 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 received a closing statement instead of a HUD-1 form.
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, and it’s what homebuyers and sellers still generally receive today. 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 big-ticket items (like the home’s sale price) down to the smallest charges (like 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 fee | Whether the mortgage carries an origination fee, and the amount if so |
| Property tax deposit | Any payments made toward local property taxes |
| Appraisal fee | The amount charged by the appraiser for their evaluation of the property |
| Credit report fee | The cost of running the buyer’s credit report |
| Inspection cost | The charge for a home inspector to assess the property’s condition |
| Escrow funds | Any escrow money 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 real estate agents involved in the transaction |
| Broker fee | 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 the remainder of their own mortgage with the proceeds, which is common, 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. Typically, closing agents are real estate attorneys, title companies or escrow officers.
Closing statements must be issued at least three business days before closing. This deadline allows all parties time to review the form and ensure that the information it contains is accurate — not just for the sums involved and agreed-upon, but also who pays for what.
Whether you’re the buyer or the seller of a home, it’s essential to review your closing statement. You want to make sure it accurately reflects the terms of the purchase agreement — especially the contract’s delineation or assignment of any particular costs. Buyers financing their home purchase should make sure all the mortgage-related fees, terms and other details align with the statements and documents they received 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.
Bottom line
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. Even so, people are often shocked when they see how their closing costs add up: For homebuyers, the amount can total 2 to 5 percent of the home’s purchase price. 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.
