When you’re getting ready to close on a home, you will be presented with several important documents detailing your loan terms, closing costs, and the exact amounts to be paid or received by each party. Among these documents, the closing disclosure and settlement statement (also known as an ALTA settlement statement or HUD-1 in older transactions) are crucial.
While these two forms may contain similar information, they serve different purposes and are not interchangeable. The closing disclosure is a document required by lenders to explain the specifics of your mortgage and must be provided at least three days before closing. On the other hand, the settlement statement is prepared by the closing agent and provides an itemized list of the final costs of the transaction for both the buyer and seller on the closing day.
Whether you are closing in Boulder, CO, Memphis, TN, or Providence, RI, understanding the relationship between these documents can help you identify any errors early on and avoid any last-minute surprises.
What is a closing disclosure?
A closing disclosure is a federally mandated five-page document that provides the borrower (the buyer taking out a mortgage) with the final details of their home loan. This document is designed to protect consumers and must be delivered at least three business days before the closing.
Who receives the closing disclosure?
Only the borrower receives the closing disclosure. Sellers do not receive this document.
What is the purpose of the closing disclosure?
The closing disclosure outlines:
- Final loan terms: Includes interest rate, loan amount, and any changes to terms since application.
- Projected monthly mortgage payments: Details your principal, interest, mortgage insurance, and escrow for your monthly budget.
- Closing costs and prepaid expenses: Lists all required upfront payments, like taxes, home insurance, and interest.
- Cash needed to close: The exact amount you’ll need to bring to closing, avoiding surprises.
- A detailed breakdown of loan fees, lender charges, and third-party costs: It details every dollar’s destination, from origination to appraisal and title charges.
The closing disclosure’s main purpose is to ensure that borrowers are fully aware of what they are paying and can compare the final numbers with their initial loan estimate.
Timing: The three-day rule
Federal regulations mandate that lenders provide the closing disclosure three business days before the buyer signs the final loan documents. This allows borrowers adequate time to review the document, ask questions, or address any discrepancies.
What is a settlement statement (ALTA or HUD-1)?
A settlement statement, also known as an ALTA settlement statement, is a detailed breakdown of every financial aspect of a real estate transaction. Unlike the closing disclosure, the settlement statement accounts for both sides of the deal.
Who receives the settlement statement?
Both the buyer and seller receive their respective versions of the settlement statement. Additionally, Redfin agents and lenders often receive copies as well.
What is the purpose of the settlement statement?
The settlement statement itemizes:
- All buyer and seller closing costs: A comprehensive list of all transaction fees, from title to recording, specifying who is responsible for each.
- Credits and prorations: Pro-rations for property taxes, HOA dues, utilities, or seller concessions ensure equitable payments up to the closing.
- Taxes and insurance: Property tax, transfer tax, homeowner’s insurance, and any lender-required prepaid reserves collected.
- Agent commissions: Total commissions owed and distributed to the buyer’s and listing agents.
- Payoffs: The exact amounts required to pay off the seller’s existing mortgage, liens, or other property-related obligations.
- All deposits and disbursements: Details all upfront payments (such as earnest money) and how funds will be distributed after closing, including seller proceeds.
Accuracy: Totals must match the closing disclosure
As the closing disclosure is based on the settlement statement, it is essential that the buyer’s totals match exactly, especially regarding cash needed to close and closing costs. Any discrepancies must be promptly addressed and corrected by the closing agent.
The key differences between closing disclosure vs. settlement statement
To understand when you will encounter each document and what information they cover, here are the primary distinctions between the closing disclosure and the settlement statement:
| Feature | Closing disclosure | Settlement statement |
| Who receives it? | Borrower only | Buyer and seller each receive versions |
| Purpose | Final loan terms and borrower-specific costs | Comprehensive financial accounting for both parties |
| Content | Loan details, payments, borrower costs | All transaction charges, credits, deposits, commissions |
| Legal requirement? | Yes, for most mortgage loans | Not federally mandated, but common practice |
| Timing | Must be received 3 days before closing | Usually provided at or just before closing |
| Must match? | Yes, totals must match the settlement statement | The basis for closing disclosure figures |
Why both documents are important
Despite their different roles, the closing disclosure and settlement statement work together to ensure:
- Transparent, accurate financial reporting
- Protection for both buyers and sellers
- Compliance with federal consumer protection regulations
- Consistent final numbers
The settlement statement is particularly useful for tax preparation and record-keeping, especially for sellers who require documentation of fees, commissions, and closing costs.
State-specific considerations: California and other markets
Since closing practices vary from state to state, the specific documents you receive and their preparation may differ based on your location.
Escrow states
- Where: California, Washington, Arizona, Nevada
- How it works: Escrow or title companies manage the closing process and coordinate funding.
- Buyer paperwork: Closing Disclosure + buyer’s ALTA settlement statement
- Seller paperwork: Seller-specific ALTA settlement statement
Attorney states
- Where: New York, New Jersey, Massachusetts, Georgia, North Carolina, South Carolina
- How it works: A real estate attorney oversees the closing, reviews all documents, and may conduct the process.
- Buyer paperwork: Closing Disclosure + ALTA-style settlement statement (may include state-specific fees)
- Seller paperwork: Seller’s ALTA settlement statement with any necessary attorney addenda
Title-company states
- Where: Many states in the Midwest and South
- How it works: Title companies oversee the closing process and manage funding, recording, and disbursement.
- Buyer paperwork: Closing Disclosure + ALTA settlement statement (format may vary by market)
- Seller paperwork: Seller-specific ALTA settlement statement
Cash transactions (nationwide)
- Where: All states
- How it works: In cases without a loan, there is no lender oversight or Closing Disclosure involved.
- Buyer paperwork: ALTA settlement statement (or occasionally a HUD-1 in specific markets)
- Seller paperwork: Seller’s ALTA or HUD-1 settlement statement
When and how you will receive these documents
Timing is crucial during the closing process, so here is when you can expect to receive each document:
- Closing disclosure: Sent by the lender three business days before closing, typically via email through a secure portal.
- Settlement statement: Prepared by the title company or closing attorney and provided shortly before or at the closing, sometimes on the day of.
Using the settlement statement for taxes and records
The settlement statement is one of the most valuable documents you will receive during the closing process as it includes:
- Property taxes paid or credited
- Transfer taxes
- Recording fees
- Real estate commissions
- Seller-paid closing costs
- Buyer credits and adjustments
Sellers, in particular, should retain this document for capital gains reporting purposes.
Compliance and accuracy checklist
Before signing your final documents, it is advisable to go through this brief checklist for accuracy:
- Ensure you have received your closing disclosure at least 3 business days before signing
- Compare loan terms with your initial loan estimate
- Verify that the closing disclosure totals match the settlement statement