Forensic Loan Audit On HUD 1 Statement

What sorts of loans demand a HUD-1 settlement statement?

A closing disclosure is frequently reviewed when a conventional mortgage is about to close. However, you could be required to see a HUD-1 settlement statement before proceeding to the closing table if you’re taking out a home equity line of credit (HELOC), a mortgage for a manufactured home that is not tied to real land, or a reverse mortgage.

The HUD document includes a Truth-in-Lending disclosure and outlines the last few aspects of your loan documentation. It will be easier for you to prevent mistakes that could end up costing you time and/or money if you read and comprehend the contents of your HUD-1 settlement statement.

HELOCs

A HELOC is a type of credit line based on mortgages that functions similarly to a credit card. It permits revolving access to the equity in your house, which is the difference between the value of the property you already own and the balance owed to your lender.

Once you’ve been given the go-ahead for a HELOC, you can take out as much money as you need, up to your maximum loan amount, and pay it back as many times as you choose. The draw time for this rotating commodity is predetermined and typically lasts for 10 years. You make set payments on the remaining balance until it is paid in full after the draw period has ended.

Open-ended lines of credit are one type of home equity instrument that is no longer required to use the HUD-1 settlement form. If a HUD-1 settlement statement is involved, or if a Truth-in-Lending disclosure will be provided in its place, your lender will inform you.

Reverse mortgages

For homeowners who are 62 or older, a reverse mortgage is a specific kind of mortgage. With a reverse mortgage, you can take equity out of your house as opposed to paying payments to a lender as you would with a regular mortgage. The money can be obtained in one lump sum, as a line of credit, as monthly income, or as a mix of all three.

Your reverse mortgage loan’s amount does not decrease over time because no payments are being made; rather, it increases. As the reverse mortgage continues, so will your home’s equity. When you vacate the property, the house is sold, or when you pass away, you will be required to repay the reverse mortgage debt.

Prefabricated house loans without a real estate guarantee

A more cheap option to traditional homes with foundations is a manufactured home. These modular homes are constructed in factories before being shipped and assembled on land you may own or rent.

The financing is handled differently if the land is rented or if the manufactured house hasn’t been fastened to the land on which it’s located. This is so because, similar to when you purchase a car, the house is regarded as personal property.

In this situation, you can receive a HUD-1 settlement statement outlining the conditions of your loan. This differs from the closing disclosure you would typically receive when buying a manufactured house that is fastened to the ground and subject to real estate taxes.

Instead of a HUD-1 settlement statement or closing disclosure, certain prefabricated home borrowers might get a Truth-in-Lending disclosure.

Comparing the HUD-1 settlement statement to the closing disclosure

Prior to closing, the majority of borrowers used to get a HUD-1 settlement statement. The majority of mortgage customers now receive closing disclosures rather than settlement statements as of October 2015, nonetheless. These disclosures were introduced by the Consumer Financial Protection Bureau (CFPB) as a way to communicate information similar to that in settlement statements in a clearer manner.

However, not every borrower will receive a closing disclosure despite the change. As indicated above, reverse mortgage, HELOC, and some prefabricated home loan borrowers will receive HUD-1 settlement statements instead.

Settlement statements don’t include as much information and are harder to understand than closing disclosures. The major issue with them is that lenders are not required to provide you with a settlement statement before the closure. You will need to request to see the document before closing. Lenders must offer you a closing disclosure three working days or more before the transaction takes place.

Ask your lender for the HUD-1 statement at least one day before closing if you will receive one as part of a HELOC, reverse mortgage, or manufactured home loan. This gives you time to review the document, correct any mistakes, and ask the lender questions.

Meaning of each HUD-1 page

At first glance, the HUD-1 form could appear overpowering. It is simple to disregard due to the small print and peculiar lingo. But it’s beneficial to understand the fundamentals. This document is organized as follows:

• Page 1: A list of all fees
• Page 2: A thorough explanation of each charge
• Page 3: Includes a loan summary and a list of modifications made between the Good Faith Estimate (GFE) and settlement.

Make sure you comprehend these aspects because they may impact both when you may pay off your loan and how much your payments might rise over time.