Good Faith Estimate and Settlement Statements - An Introduction for Home Buyers

For many first time home buyers, estimating expenses related to closing a real estate transaction is overwhelming. Sellers find its counterpart viz. estimating the equity due to them when the transaction closes equally trying. While Good Faith Estimates are intended to ease this situation, it is not an accurate science. Complicating things further is the fact that multiple good faith estimates, each with minor adjustments, are usually sent out within the 30-day span of closing. Estimation is hard to generalize – each transaction is unique, a number of service providers are involved and taxes vary by location.

In the US, HUD 1 settlement statement is a standard form that both the buyer and the seller employ to itemize real estate transaction services and fees. The final closing settlement statement for the buyer and seller is derived from this form. For those wishing to distance from anything financially related, good faith estimates, HUD settlement statement, and the final closing settlement statement are just unavoidable distractions before closing escrow. While in a majority of instances, a hands-off approach works fine; these statements can contain mistakes too. The forms are fairly simple once the essence of each is gleaned, so whatever effort made to decode them provides good dividends.

The intention of good faith estimates is to provide the buyer with a rough idea of the costs involved in the transaction. Below is a look at a sample good faith estimate:


HUD-1 LineDescription of ChargesAmount
801Loan Origination fee (0.000%)
802Loan Discount (0.000%)
803Appraisal Fee$250
804Credit Report$12.50
809Processing Fee$695.00*
810Tax Service Contract$80.00*
1303Flood Certification$18.00*
805Final Inspection Fee
811Underwriting Fee
812Buydown Funds$395.00*
901Interest Adjustment 30 days - $74.096 per day$2,222.88*
902Mortgage Insurance Premium
903Hazard Insurance Premium
904Flood Insurance Premium
1001Hazard Insurance Reserve$150.00
1002Mortgage Insurance Reserve
1004Property Tax/Assessment Reserve$3,249.98
1006Flood Insurance Reserver
1008Aggregate Escrow Adjustment$(450.00)
1101Settlement or Closing Fee$275.00*
1105Document Preparation Fee
1106Notary Fees$60
1108Title Insurance$1397.79
1111Contract Coord Fee$275.00*
1201Recording Fees$125.00
1202City/County Tax Stamps$572.55
1203State Tax Stamps
1301Survery Fee
- Total Estimated Charges$9328.70

Looking at the sample Good Faith Estimates spreadsheet above, notice the first column is titled ‘HUD-1 Line’ and each line has a distinct number. This is because the standardized HUD-1 form assigns numbers to each itemized line item charge. The ‘HUD-1 Line’ column in the spreadsheet indicates the number in the HUD-1 form that corresponds to the charge listed. The description and amount columns are self-explanatory. Many of the figures listed are starred, indicating the value is classified as a finance charge as opposed to other charges such as taxes or costs of other services. The last line titled ‘Total Estimated Charges’ is an estimate of the closing cost needed at close of escrow (COE). While this is a rough estimate, this is the only document to go with until the day before (earliest) the close of escrow, regarding the closing cost that is to be funded. Hence it is prudent to have at least 20% more in the bank to fund closing costs on the day of COE, in addition to the down payment.

A final HUD-1 settlement statement is provided along with the final closing settlement statement on the day of COE. The HUD-1 settlement statement is a mine of information – the snag is that it is available only when signing on the day of COE. Below is a look at a portion of the HUD-1 settlement statement that lists the borrower’s side of the transaction:


HUD-1 LineDescriptionAmount
100Gross Amount Due From Borrower: -
101Contract Sales Price$500,000.00
102Personal Property
103Settlement charges to borrower (line 1400)$14,000.00
- Adjustments for Items Paid by Seller in Advance: -
106City/Town Taxes
107County Taxes$750.00
108Assessments-
120Gross Amount due from Borrower$514,750.00
200Amounts paid by or in behalf of borrower:-
201Deposit or Earnest Money$12,000.00
202Principal amount of new loan$400,000.00
203Existing loan(s) taken subject to
- Adjustments for Items Unpaid by Seller: -
210City/Town Taxes
211County Taxes
212Assessments
220Total Paid By/For Borrower$412,000.00
300Cash at Settlement from/to borrower:
301Gross amount due from borrower (line 120)$514,750.00
302Less amounts paid by/for borrower (line 220)$412,000.00
303Cash (From) (To) Borrower$102,750.00

The actual HUD-1 settlement statement has columns for both the buyer and the seller side of the transaction. The columns of interest to the buyer are titled ‘Summary of Borrower’s transaction’ and to the seller it is the columns titled ‘Summary of Seller’s transaction’. The borrower’s summary rows are divided into two sections as in the spreadsheet above – a Debit section titled ‘Gross Amount Due from Borrower’ and a Credit section titled ‘Amounts Paid by or on Behalf of Borrower’. Line 103 (line 502 in summary of seller’s transaction) is the total of all the settlement charges listed in that section of the form. The settlement charges include many items under the following sections: Broker Fees, Loan Fees, Lender required pre-payments, Reserves deposited with lender, Title Charges, Government recording and transfer fees, and any additional settlement charges.

The closing settlement statement to the buyer and the seller are both derived from the HUD-1 settlement statement. The corresponding portions from the HUD-1 settlement statement are presented in a bookkeeping format with Debits and Credits instead of a single Amount column in the final closing settlement statements. Below is a look at a sample final buyer’s closing settlement statement – we added a column to indicate the line in HUD-1 that corresponds to each entry in the closing settlement statement:


DescriptionDebitsCreditsHUD-1 reference
Sales Price$500,000.00- 101
Amount of New Loan- $400,000.00202
Deposit retained by xxx- 12,000.00201
County Taxes$750.00- 107
Prorate Taxes to $800.00- 901 – settlement charges page 2
Appraisal Fee$250.00- 804 – settlement charges page 2
Credit Report Fee$20.00- 805 – settlement charges page 2
Tax Service Fee$80.00- 806 – settlement charges page 2
Underwriting Fee$400.00- 811 – settlement charges page 2
Processing Fee$700.00- 812 - settlement charges page 2
Flood Certification Fee$20.00- 809 – settlement charges page 2
Commitment Fee$280.00- 814 – settlement charges page 2
Interest to $1,000.00- 901 – settlement charges page 2
Home owner’s insurance premium$800.00- 903 – settlement charges page 2
Home owner’s insurance reserve$200.00- 1002 – settlement charges page 2
County Property Taxes reserve$3,000.00- 1005 – settlement charges page 2
Lender’s Title Insurance$600.00- 1104 – settlement charges page 2
Owner’s Title Insurance$900.00- 1106 – settlement charges page 2
Transfer Taxes$3000.00- 1203 – settlement charges page 2
City/County Tax Stamps$1950.00- 1204 – settlement charges page 2
Subtotals$514,750.00$412,000.00NA
Balance Due From Buyer- $102,750.00303
Totals$514,750.00$514,750.00NA

Each row in the statement is taken from the completed HUD-1 form. The statement has three columns – a description column followed by Debits and Credits columns. The amounts in the Debits column is taken from the column titled ‘Gross Amount Due from Borrower’ and the amounts in the Credits column is taken from the column titled ‘Amounts Paid by or in Behalf of Borrower’. The row titled ‘Balance Due From Buyer’ is the total amount owed at COE.

A similar closing settlement statement is provided to the seller as well. As with the buyer’s statement, the data is derived from the same HUD-1 settlement statement, with rows from the ‘Summary of Seller’s Transaction’ section.

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Last Updated: 03/2012. 


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