A Project Has An Initial Cash Flow Of 600 HUD-1 As A Marketing Tool – For Realtors

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HUD-1 As A Marketing Tool – For Realtors

How can HUD-1 help you build a business?

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The HUD-1 is a standard form that you always use. This form not only serves as settlement closing statement but also serves as proof of payment of various tax deductions. Understanding the forms and tax deductible items and communicating them to your clients will help your clients minimize their taxes and help you build trust and gain more business exposure.

What is HUD-1?

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The HUD-1 is a form used by the settlement agent (closing agent) to collect all incoming funds and all fees paid and deposited by the borrower and seller for the real estate transaction.

When is the HUD-1 issued?

The Real Estate Settlement Procedures Act (RESPA) requires the issuance of the form in all real estate transactions in the United States that involve federally related mortgage loans. RESPA requires that you be given a copy of the HUD-1 at least one day before settlement.

When do consumers need a HUD-1 for taxes?

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Consumers use the information included in the form when they file their annual taxes. The filing deadline for the process year is usually April 15 each year. It is recommended that a copy of the HUD-1 be sent to the client in January to allow the client sufficient time to file taxes using the HUD-1 information.

Because real estate transactions take place throughout the year, usually long before the tax return is due, the HUD-1 provided to the client at closing can be lost or misplaced. Sending a copy of the HUD-1 along with the cover letter to the client will be very helpful and save the client time.

HUD-1 Client Sample Letter

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The following is a sample letter you can use to send to your client:

[Date]

Tax time is coming

dear [Client’s Name]:

Tax time is right around the corner and the first thing you will need is a copy of the closing statement on your property. Moving can be a very busy time and you may miss this very important document.

I am sure that you will avail all possible tax benefits from our transaction. If your accountant has any questions, please give him or her a call (if you need an accounting referral you can trust, I’d be happy to provide one).

I look forward to continuing as your Realtor and providing you with the highest level of service possible.

Your humble,

[your name]

Oh, by the way…if you have any friends or relatives looking to buy or sell a home, I’d love to be of service. So, when you think of these people, call me with their name and number. I will be happy to serve and follow up on their real estate needs.

What HUD-1 information is important for your client’s taxes?

The information reported in the HUD-1 relates to the following tax statements and schedules:

Tax form HUD-1 line

Schedule A (Itemized Deductions), Line 10 – Annual Mortgage Interest Deduction Line 901

Schedule A (Itemized Deduction), Line 10 – Points Deduction Line 802

Schedule A (Itemized Deductions), Line 6 – Real Estate Tax Deductions Lines 1003, 1004

Schedule E (Rental Income), Line 20 – Depreciation (cost of property required) Lines 101, 102

Schedule E (Rental Income), Line 12a – Mortgage Interest Deduction Lines 901, 802

Schedule E (Rental Income), Line 9 – Insurance 903, 1001, 1002

Schedule E (Rental Income), Line 16a – Actual State Tax 1003, 1004

Schedule E (Rental Income), Line 18 – Other Deductions 703, 801-811, 1005, 1101-1110, 1201-3, 1301-1302

Schedule D (Capital Gains) Part I, II, Column d – Sale Price 401, 402

Schedule D (Capital Gains) – Part I, II, Column E – Expenditure or other basis 101, 102

Form 6252 (Installment Sale), Line 8 – Sale Price 401, 402

Form 6252 (Installment Sale), Line 8 – Cost or Other Basis 101, 102

Form 4797 (Sale of Business Property), Part I, Column D – Price or Other Basis 401, 402

Form 4797 (Sale of Business Property), Part I, Column f – 101, 102

Two sections of the HUD-1

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Section J, Summary of Debtor’s Transactions

This section has 6 sections and is basically a summary of the entries made in section L (Settlement Charges, see below).

o Section 100, Total Amount Due by Borrower

o Section 200, Amount paid by or on behalf of debtor

o Section 300, Cash on Settlement by Creditor/Debtor

o Section 400, Total amount payable to seller

o Section 500, Deduction of Seller’s Dues

o Section 600, Cash on settlement with/by seller

Section L, Settlement Charges

There several entries are tabulated before being brought to page 1. Columns include fees that are paid from the borrower’s or seller’s funds. Your closing statement may not have entries on all lines.

o Section 700, Agency Commission

o Section 800, Goods payable in connection with debt

o Section 900, the lender has to make advance payments

o Section 1000, Reserve Accrued to Lender

o Section 1100, Title Fees

o Section 1200, Government Recording and Transfer Fees

o Sections 1300 and 1400, additional settlement charges and gross

Line by line description

Section 700, Agency Commission

701 commission paid to real estate agencies

702 commission paid to real estate agencies

Section 800, Items payable in connection with debt

801 processing or original loan fees. If the fee is a percentage of the loan amount, the percentage will be stated.

802 “Points” are charged by the lender. Each point is 1% of the loan amount.

803 Assessment fees. If payment is made with the loan application prior to closing, it should be marked “POC” (issued outside of closing). The amount will be shown, but will not be included in the total charge you bring to settlement.

804 Cost of credit report if not included in origination fee.

805 inspection fee, made at lender’s request.

806 Private mortgage insurance (PMI) application fee.

807 Assumptive charge, when the buyer takes over the seller’s existing mortgage.

808 Miscellaneous items relating to loans, such as fees paid to mortgage brokers.

809 Miscellaneous items related to the loan, such as fees paid to mortgage brokers.

810 Miscellaneous items related to loans, such as fees paid to mortgage brokers.

811 Miscellaneous items related to loans, such as fees paid to mortgage brokers.

Section 900, Items to be paid in advance by lender

901 Interest collected on settlement for the period between closing and the first monthly payment.

902 MORTGAGE INSURANCE PREMIUM PAYABLE ON SETTLEMENT. Escrow reserves for mortgage insurance are recorded later. It should be noted if your mortgage insurance is a lump sum payment for the life of the loan.

903 Risk insurance premium payable on settlement. It is not used for insurance reserves going into escrow.

904 Miscellaneous items: flood insurance, mortgage life insurance, credit life insurance and disability insurance premiums.

905 Miscellaneous Items: Flood Insurance, Mortgage Life Insurance, Credit Life Insurance and Disability Insurance Premiums.

Section 1000 Deposit with Lender

1001-1007 funds are used to start the borrower’s escrow account, from which the lender will pay the next year’s premiums. Each mortgage payment includes an amount that covers a portion of these recurring costs.

1008 Escrow Adjustment The settlement agent compares different escrow formulas to ensure that the borrower does not collect more escrow funds than allowed.

Section 1100, Title Fees

1101 Settlement agent’s fees.

The abstract or title is entered in the fee lines for search and examination

1102 Abstract / Title search fee

1103 Examination fee

1104 Title Insurance Binder (also called Commitment to Insure). Title insurance policy payments are then dropped.

1105 Records preparation fees for deeds and works on mortgages and notes

1106 Fees charged by Notaries Public for certifying execution of settlement documents

1107 Attorney fees.

1108 Title insurance (excluding cost of binder).

1109 Information lines reporting the cost of separate title insurance policies (only line 1108 is carried over.)

1110 Lines reporting the cost of separate title insurance policies (only line 1108 is carried forward.)

1111-1113 Other title-related fees that vary by location: Tax certificate fee / Private tax fee

Section 1200, Government recording and transfer fees

1201 recording fee

1202 City or county recording fee

1203 State recording fees

1204-1205 Miscellaneous recording fee items

Section 1300, survey and inspection fees (insects, lead-based paint, radon, structural inspection, inspection for heating, plumbing or electrical equipment) and home warranty.

Line 1400 Total settlement fees paid from borrower and seller funds. They are also entered in sections J and K,

Lines 103 and 502.

Section J, Summary of Debtor’s Transactions

Section 100, Total amount payable by debtor

Line 101 Total sales price of the property.

Line 102 Personal property charges (drapery, washer, dryer, outdoor furniture and decorative items purchased from a vendor)

Line 103 Total Settlement Charges to Borrower (from Line 1400 Section L)

Lines 104-105 Amounts owed by the borrower or amounts previously paid by the seller (include the balance in the seller’s escrow account if the borrower assumes the loan and unpaid rent may be owed to the seller)

Lines 106-112 Goods prepaid by seller (proportionate portion of city/county taxes)

Line 120 Total amount owed by the borrower. 101 to 112 lines in total

Section 200, Amount paid by or on behalf of debtor

Line 201 Credit the buyer for earnest money due when the offer was accepted.

Line 202 New loan made by borrower to borrower.

Line 203 Borrower assumes or takes title subject to an existing loan or lien on property.

Lines 204-209 Miscellaneous items paid by or on behalf of the buyer (an allowance the seller pays for the repair or replacement of the goods or a note the seller accepts from the creditor for part of the purchase price)

Lines 210-219 Bills not yet paid by the seller, but outstanding (taxes, assessments, or rent collected in advance by the seller for a period extending beyond the settlement date)

Line 220 Total for all items in Section 200. The total amount is added to the borrower’s income.

Section 300, Cash on Settlement by Debtor/Debtor

Line 301 Summary of total amount owed by debtor.

Line 302 Summary of all items already paid by or for the debtor.

Line 303 is the difference between lines 301 and 302 showing how much the borrower owes at closing. If the number is negative, the borrower will get the funds back at closing.

Section K, Summary of Seller’s Transactions

Section 400, Total amount due to seller (Amount added to seller’s fund)

Line 401 is the gross sales price of the property.

Lines 404-405 Amount owed by borrower or amount previously paid by seller (escrow account balance or unpaid rent)

Lines 406-412 Goods Prepaid by Seller (Proportionate Portion of City/County Taxes)

Line 420 is the seller’s gross amount. 401 to 412 lines in total.

Section 500, Deduction of amount payable by seller (amount deducted from seller’s fund)

Line 501 is when a third party has held the borrower’s earnest money deposit and must pay it directly to the seller.

502 Total from line 1400, Seller’s total charge as calculated in Section L.

Line 503 When the borrower assumes or takes title subject to an existing lien that is deducted from the sale price.

Lines 504-505 First and/or second debt that will be repaid as part of the settlement (including accrued interest).

Lines 506-509 Miscellaneous entries

Line 506 Deposits paid by the borrower to a vendor or third party other than the settlement agent

Lines 510-519 Bills unpaid by the seller (taxes, assessments, or rent collected in advance)

Line 520 Total of all items in section 500. The total amount is deducted from the seller’s income.

Section 600, Cash on settlement with/by seller

Line Line 601 is the total amount owed to the seller, from line 420.

Line 602 Total deduction from seller’s income, from 520.

Difference between lines 603 601 and 602. Amount of cash paid to the seller (if a negative number is owed by the seller at closing)

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