The costs of obtaining a loan are a significant expense for buyers, but in the past, lenders often didn't disclose all of their fees until after a buyer had committed to using their services. Nondisclosure created problems at settlement and beyond, because buyers didn't understand how fees would impact their settlement expenses and long-term loan costs. The federal government stepped in with the Real Estate Settlement Procedures Act (RESPA), which requires lenders to make certain disclosures about the costs of loans so that buyers are better equipped to compare lenders.

Within three days of applying for a loan, your lender or mortgage broker must give you a good-faith estimate (GFE) of anticipated settlement costs, listing in part the loan-related charges you are likely to pay at your real-estate closing. If the lender requires that you use a specific settlement agent to handle the closing procedure, it must be disclosed on the GFE.

The mortgage servicing disclosure statement is another RESPA requirement. It includes information that explains what steps you should take to resolve current or future complaints you may have against the lender. It also tells you if the lender intends to service the loan itself or transfer it to another company after settlement. Servicing lenders are the ones you deal with on a regular basis for payments and customer service issues, and it isn't unusual for the originating lender to transfer that job to someone else after you close on the property.

The lender should also give you a special information booklet that contains details regarding real-estate settlement services in general. Note, however, that the lender is not required to give you any booklets or other documents related to settlement if it turns down your loan application within three days.

Uniform Settlement Statement (HUD-1)

The HUD-1 is a form on which the settlement agent itemizes all charges and expenses incurred by the buyer and the seller in a real-estate transaction. RESPA requires that settlement agents use the HUD-1 for all transactions that involve federally related mortgages. That category includes loans made by banks and other lenders whose deposits are insured by the federal government — such as loans insured by the FHA or guaranteed by the VA, and loans that will be sold to Fannie Mae, Freddie Mac, or Ginnie Mae. In short, it includes the majority of real-estate loans made in the United States. Settlement agents are accustomed to using the HUD-1, so you'll probably see it used to complete many cash transactions, too.

RESPA rules require that buyers and sellers be given a copy of the HUD-1 at least one day prior to settlement, but that sometimes doesn't happen. The bank packets, which outline the details a settlement agent needs to fill out in the HUD-1, sometimes arrive shortly before closing, leaving little time to prepare the statement. Sometimes repairs or other actions that create expense are still in progress and cannot be added to the statement until the last minute.

Even if you do receive the settlement statement early, entries can change as all parties review it for accuracy. Never assume that the statement is correct because mistakes are common. Your real-estate agent and your settlement agent should both review the HUD-1 with you. The more eyes looking at the statement, the more likely errors will be found.