HUD stands for Housing and Urban Development. The HUD Settlement Statement is a document issued when a borrower takes out a loan to purchase real estate. Understanding what this statement entails to record a HUD Settlement Statement is essential. The HUD Settlement Statement consists of the parties involved, including the buyer and seller, property details, settlement agent details, and figures (numerical data). We will discuss these figures and their recording in financial books in the following paragraphs.
How to Record a HUD Settlement Statement
Sellers’ transactions
This section will sort out the list of transactions involved and their treatment in the books.
Credits – will list the gross amount owed to the seller at the time of settlement closing:
- Contract’s Sale Price
- Personal Property
- Any additional credits to be made to the seller, including money owed to the seller by the buyer of this HUD Settlement Statement
- Other credit entries to the seller’s account may handle adjustments that the seller has settled in advance, such as prepaid taxes, homeowner association dues, and similar expenses.
Debits – will list the charges of the seller at the time of settlement closing:
- Any excess deposits made by the buyer
- Settlement charges paid by the seller
- Full or partial mortgage loans or other owed liens will reduce seller account debt.
- Debit entries will also consist of closing costs paid by the seller on behalf of the buyer.
- Lastly, all adjustments for items unpaid by the seller include the pro-ration of property taxes, security deposits, and things to credit the buyer.
Buyers’ transactions
The list of transactions involved and their treatment will be mentioned in this section.
Debits – will list the gross amount owed by the buyer at the time of statement closing:
- Contract’s Sale Price (remember that this is the double-entry made alongside the credit earned to the seller, as mentioned above)
- Personal Property
- Settlement charges paid by the buyer
- Any amounts due from the buyer
- Adjustments for items settled in advance by the seller may be as miscellaneous expenses.
Credits – will list the amount paid by the buyer or those born on behalf of the buyer of the HUD Settlement Statement:
- Deposit made by the buyer
- The loan amounts
- The amount the seller owes to the buying party is a credit entry and must be recorded. The records are the double-entry made in opposition to point no. 5 made in the seller’s debits transactions list.
- Property tax and assessment pro-ration credits from the seller to the buyer of the HUD Settlement Statement
- Lastly, any additional credits to the buyer will be entered here from any source if not from the seller.
Now that the debits and credits for both parties have been identified in the HUD Settlement Statement, you will enter these, and you shall estimate the total balances on both accounts in the accounting books to serve for bookkeeping purposes. The treatment of these entries will be carried forward to the general ledger for all other statements in the chart of accounts.
Conclusion
In conclusion, the HUD Settlement Statement is a critical document in real estate transactions, delineating buyers’ and sellers’ financial obligations and credits at settlement closing. Understanding its intricacies is paramount for accurate recording in economic books. Sellers’ transactions entail credits like the sale price and personal property, with debits covering settlement fees and mortgage loans.
Buyers list debits, such as the sale price and settlement charges, offset by credits, including deposits and loan amounts. Accounting for prepaid items and credits from the seller is essential. Proper recording in the general ledger ensures meticulous bookkeeping, facilitating effective management of financial records for all parties involved in real estate transactions.
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