The original HUD-1 was developed as a by-product of the Real Estate Settlement and Procedures Act of 1974 — or, as it’s usually called, RESPA. Prior to 1974 settlement forms could be different, meaning that it was very difficult to compare costs or to know what was deductible for tax purposes in the year of the transaction.

So what do we get after 36 years? The new HUD-1 is a vast improvement over the old model. It’s three letter-sized pages long rather than two legal pages, but there’s much more information in the new HUD-1. Buried in the form is an accounting of closing costs and perhaps even some write-offs. Buyers will find the full and complete cost of buying real estate while sellers will see how much cash (if any) they’re getting from the transaction.

Page One

The first page of the form is a summary of the transaction. In effect, it translates the sales contract between buyers and sellers into hard numbers.

At the top of the form we first have administrative data such as:

• The type of loan (conventional, VA, FHA, etc.).
• The place and date of settlement (the date can be very important for tax purposes).
• The mortgage insurance case number (important if you’re ever facing foreclosure).
• The street address of the property. This is a concern because for great clarity and assurance the form would be better if it also included the legal address of the property.
• The name of the settlement (or closing) agent. The party that conducts the settlement is typically regarded as an agent of the settlement process. In other words, they do not represent you.

Page One, Buyer’s Side

The HUD-1 shows transaction costs for both buyers and sellers — you get to see what the other person’s information. More important you get to see your own.

On the right side of the first page we have buyer costs grouped by sections.

Section 100 — This is where buyers see the cost of the property and the cost of settlement (the figure found on line 1400). Combine the two and you get the gross amount — but not the final amount — due from the purchaser.

Notice that there can be some adjustments in this section. For instance, it may be that the seller has paid local property taxes in advance — those payments would be a credit to the seller and a cost at closing to the buyer.

Section 200 — As a buyer you may have certain credits to offset your gross costs. Credits include such things as your deposit, your new loan (for closing purposes the mortgage is a credit to the borrower because it represents money brought into closing) and any additional financing.

In the 200 section you can also see adjustments which are a credit to the buyer. For instance, maybe the seller still owes some property taxes.

Section 300 — This is a re-cap of all costs and credits. If you take the gross amount due from borrower (line 120) and subtract the buyer’s credits and cash you then get the total cash due to — or from — the borrower.

Most buyers, of course, will need to bring “cash” to settlement. By “cash” what most settlement agents really want is a certified check or a cashier’s check. Also, it may be possible to wire funds to the closing agent. Always ask the settlement provider well in advance of closing how payment can be made.

Gifts: To assure lenders that you are not somehow getting a secret loan from someone, it’s best to have closing funds in your name and on deposit for at least 90 days. If you are getting a gift to close, ask your lender how the gift is to be documented and precisely follow the lender’s instructions.

Page One, Seller’s Side

Settlement is a moment of truth for owners, the time when you find out exactly how much or how little you’re getting from your sale.

Section 400 — The sale price of the house, plus the cash paid for any personal items, are shown here as credits to the owner.

Also in this section are adjustments — credits for property taxes and other costs paid in advance.

Section 500 — If any mortgage debt remains unpaid it shows up here as a cost to the seller. Also, the costs of closing (line 1400) are here as a deduction as well as any adjustments for such costs as unpaid property taxes.

Section 600 — If we take the gross amount due to seller (line 420) and subtract the seller’s closing costs (line 520) we can then see how much cash the owner will get from closing (or, how much cash is needed to close if the seller is upside-down).

Practices around the country regarding cash to owners at closing vary. In some areas there are “wet” settlements where the owner gets a check at closing, in other areas there are “dry” closings where it takes a few days to get a check because it takes time for the lender to fund the transaction and paperwork to be recorded. In some jurisdictions there are rules requiring the disbursement of cash with a few days. For specifics, speak with your settlement agent.

Page Two

On the second page of the new HUD-1 we have a series of sections which show costs that may be paid by either buyers or sellers — or split between them. In other words, these are costs which can be negotiated when a sale offer is made. For instance, in a slow market a seller might agree to pay all transfer taxes. In a hot market, the buyer might pay.

Section 700 — If one or more real estate brokers are involved in the transaction, this section will show the compensation to each broker and the cost, if any, to buyers and sellers.

Section 800 — Getting a mortgage is hardly free. When the buyer applied for financing the lender provided a Good Faith Estimate of Closing Costs (GFE) on the new form developed by HUD. This section shows such costs as points, origination charges, appraisal fee, credit report and tax service. Borrowers should check the numbers at closing with the estimates provided in the GFE. The costs shown on lines 801 (origination charge), 802 (points), and 803 (adjusted origination fee) must be the same as the GFE.

Please see our guide to the new Good Faith Estimate form to see how it’s coordinated with the equally-new HUD-1.

Section 900 — Closing is scheduled at a time which is mutually-agreeable to the buyer and seller. That time, however, will mean that for such items as interest, mortgage insurance premiums and homeowner’s insurance there will likely be a need to make some payments for daily costs in advance until the next billing period.

Section 1000 — If you purchase a home with less that 20 percent down the lender will likely require that you pay additional amounts each month for property taxes and insurance. This money is held in an escrow or trust account and then paid out as the bills come due.

If you will have an escrow account then the lender will typically collect money in advance from borrowers to assure that the escrow account is properly funded.

Section 1100 — As part of the buying process, sellers typically promise to deliver good, marketable and insurable title — and buyers should want nothing less. This section shows the costs for title insurance — both lender’s and owner’s coverage.

Lender’s cover — which is required by lenders if you finance the purchase — protects you up to the remaining loan balance in the event of a title claim. In other words, it protects the lender.

Owner’s coverage protects you if there is a title claim up to the purchase price of the property — in other words the loan amount plus your equity. Be aware that some title insurance policies have an inflation rider so that the value of the coverage can actually increase over time. For specifics, speak with your title agent.

Also, take a look at line 1107. This shows the commission paid to the settlement agent for providing title insurance.

Section 1200 — This is where you can see how much state and local governments are getting from the transaction. Governments are elated when homes are sold because such transactions are a major source of revenue. Government taxes can includes such things as deeds, releases, transfer taxes, state taxes, stamps, etc. Call it what you will, a tax is a tax.

Section 1300 — This is where you can find additional settlement costs.

Section 1400 — The total costs to close — this number also appears on lines 103 and 502 on the first page.

Page Three

The third page of the new HUD-1 is partially a confirmation that the costs outlined in the Good Faith Estimate are what you’re actually paying — or pretty close.

Some quoted costs on the GFE cannot be changed, some can be changed as much as 10 percent and some can simply change with the winds.

Also shown on page three is a recap of your loan including the mortgage amount, interest rate, loan term, ARM-related terms (if any), prepayment penalties (if any), balloon payments built into the loan (if any) and related matters.

IMPORTANT: Always keep your closing papers in a safe place for tax reasons and to assure that your loan terms are actually the same as disclosed on the HUD-1. For questions regarding closing issues, speak with your real estate broker, mortgage lender and closing agent. Be aware that some costs found on a HUD-1 may be tax deductible — for specifics speak with a tax professional.

How To Read The HUD-1 is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Until this point HUD has generally allowed lenders to offer their own Good Faith Estimate of Closing Costs, however the new standard form for all lenders — a form that took 14 years to develop — will finally assure that borrowers actually understand what’s being charged for their loans, why and by whom.

“The mortgage crisis,” says former HUD Secretary Steve Preston, the last HUD secretary appointed by President Bush, “was fueled in part by people agreeing to mortgages that they ultimately could not afford. In some cases, people didn’t understand or know that their mortgages could result in large payment increases after just two or three years. Others did not recognize the total costs that come with homeownership. And others paid higher loan origination and closing costs simply because they did not know about other affordable options.”

So what makes this form better?

First, it’s a three-page document that every lender will have to use — meaning that offers from lenders will be the same and can readily be compared.

Second, the document is not just a list of fees and charges, it also explains in basic terms the purpose of each expense.

Third, mortgage brokers will have to show their yield-spread premiums (YSPs), costs which Preston says were “rarely understood by, or fully disclosed to, borrowers. These premiums are directly tied to the higher interest rates that borrowers pay. Consumers deserve to understand this and they need to get credit for essentially paying these premiums.”

Page One

The first page is actually a summary of loan costs — the specifics are found on page two.

Item 1 tells you how long the quoted rate and terms last. Items 3 and 4 concern loan lock-ins — how long the rates and terms will last if you lock them in at the time the GFE is issued.

The loan summary tells you the amount of the loan, the initial loan rate and monthly payment. IMPORTANT: If you have an ARM the next few items will tell you:

• How high the interest rate can go.
• When the interest rate can first rise.
• The maximum monthly payment you can expect.
• If a prepayment penalty is allowed and, if yes, how much it will cost.
• Whether there is a balloon payment at the end of the loan terms.

Next the form will tell you whether the lender will create an escrow or “trust” account to collect money each month for property taxes and insurance. Generally, if you buy with less than 20 percent down an escrow account is required by the lender.

Finally, the form adds your origination charges (the “A” items on page two) with other settlement costs (the “B” items on page two). Be aware that you can have additional costs at closing, depending on how the sale agreement is written.

Page Two

The second page is divided into two parts, A and B. Part A looks at “origination” fees, the cost to buy your mortgage.

First, the form shows your origination fee in a dollar amount, including any yield spread premium (YSP). Under the old rules, the yield spread premium could be shown as either a dollar amount or as a percentage of the loan. Now, the entire cost of the loan, including any YSP, is shown as a single dollar amount.

Next, the form shows if your interest rate is being impacted by the origination fee. In other words, let’s say you can borrow $100,000 at 6 percent interest over 30 years with no points. This is called the par pricing for this loan. But, let’s say that you could also borrow $100,000 at 5.75 percent — if you were willing to pay 1 point at closing. A point is equal to 1 percent of the loan amount or $1,000 in this case. The form shows if you are paying for any reduction of the interest rate OR any increase in the rate by paying a smaller origination fee.

Next we go to part B. This part of the form shows the cash costs you can expect to pay at settlement (or escrow) when the loan closes. As the bottom of part B is a total which shows “Your Charges for All Other Settlement Services.”

The totals for parts A and B are then shown at the bottom of the page and on the bottom of page one as well.

HUD encountered considerable opposition from the lending industry, especially with regard to the question of how yield spread premiums should be disclosed. In an important decision which reviewed 14 years of effort to update the good faith form, a court found in 2009 that HUD had acted fairly and in the public interest with the form it produced.

Page Three

The last page should really be the first page because it contains instructions for understanding the form.

The first section lists charges that the lender cannot increase, charges that can rise by as much as 10 percent, and charges that change prior to settlement. This is important information, it means that you should check the numbers on your good faith estimate with the final figures presented to you at closing.

Next, HUD gets into the issue of higher or lower settlement fees. In the same way that mortgage loans have par pricing, so does the settlement process. In other words, if you are willing to pay a somewhat higher interest rate you may be able to lower your cash costs at closing. Indeed, you may not have to bring any cash to closing.

In the third section HUD offers borrowers the opportunity to compare loan offers from different lenders. This is important because borrowers should look at different loan offers to find the rates and terms which best meet your needs.

Lastly, HUD notes that your loan may be sold in the future. If so, after settlement “any fees lenders receive in the future cannot change the loan you receive or the charges you paid at settlement.” Translation: A contract is a contract.

HUD estimates that the new form will save typical borrowers $700 each time they finance or refinance a home. That’s a lot of money, but more could be done to cut borrower costs — and it shouldn’t take 14 years to make additional changes.

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Copyright 2009 Peter G. Miller. All Rights Reserved. Use of this material without permission is illegal, however direct links to this page are welcome.

How To Read The New Good Faith Estimate Forms is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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If you have not previously been in the civilian workforce, if you are just finishing school or military service, then you will need to develop both a resume and a first cover letter.

Why You Need A Cover Letter

The purpose of a resume is to provide a brief, accurate and dull accounting of dates, accomplishments and references, a checklist to date of who you are and what you’ve been doing.

That’s fine and appropriate, and it’s also necessary because resumes are important to employers. Resumes provide a way to quickly sort through job candidates, to narrow the field.

You want to be part of that smaller group of candidates — but you also want to shine.

A resume is incomplete. It tells us something about you in a historical sense, but it doesn’t say much about interests, values, motivations or perspectives. It doesn’t say why you want the job or why you’re better than the next person. If a resume by itself gets you an interview that’s great, but that’s not enough.

In a tough, competitive world you have to stand out. As adults we keep score and there are penalties for not competing. Going for a job is not the time to be shy, embarrassed, uncertain or unsure. While a resume documents your details, a cover letter let’s you shine.

How To Write A First Cover Letter

Step 1: Find the right person to contact. The right person may be someone in human resources, a company official or the supervisor who is looking for a new employee. No matter. You have to get the right name with the right spelling. You need the right address including the correct ZIP code.

If you know the person to contact, so much the better. You can often check names and spelling online. With big companies, the company operator (dial “0″ if there’s a phone tree) can often be helpful.

In other cases you can call the company and simply ask for the name of the person who heads human resources. Then call back and ask for the individual’s mailing address — remember, it may be different than the company’s main office or work site.

Be aware that in some cases companies do not want to give out specific names. The reasons usually concerns privacy and security. This is a problem in the sense that you do not want to send a letter to a blind address if it can be avoided. The solution is to call the human resources office and ask if you can address your letter to a specific individual — sometimes staff members will be helpful. Alternatively, you can try the back door and look up the human relations department online to see if any names show up. If yes, call the company and ask if Smith still works there. If the name is complex, ask how to spell it.

Step 2: Educate yourself. Find out about the company with an online search. What are their latest products and services? Where do they have offices and facilities? What does their web site say about them and their self-perceptions? Do they have interests in charities? Local community events? A unique tradition?

Step 3: Once you have a name you then need to write a letter with a proper business format. The attached PDF shows how a model cover letter should be written and organized.

Normally you want to use only one page for a first cover letter. At the top of the letter you want your contact information, the date, the recipient’s contact information and the salutation (Dear…).

Step 4: Once the format is set up you then want to write the body of your letter. In writing this material remember these rules:

• Write in sentences and paragraphs with proper spelling and grammar.
• Write short sentences and paragraphs, otherwise the page will be a huge gray blur that’s uninviting and difficult to read.
• Write in simple language with words that most people use in everyday conversation. Example: Don’t say that all real estate is nonhomogeneicwhen you mean that all real estate is different. Both expressions are correct, but the first term is ridiculous.
• Avoid clichés. No one “gives 110 percent.” Why? No one has 110 percent to give. And, no, nobody cares whether or not you can get your “arms around the problem.”
• Try not to use the same word twice in a sentence. If you need an alternative, try Thesaurus.com

A typical body for a first cover letter might look like this:

I am now completing my business degree from Jones University (or finishing my tour of duty with the United States Army, or completing my technical training, etc.) and in the process of looking for my first job. While I was in school (or the service, etc.) I had an opportunity to consider many fields and professions, but what interested me most was the combination of technology and sales (or healthcare, or teaching, or accounting, or engineering, etc.)

In researching career options on the Internet, I discovered that Smith Technology and Logistics has an innovative sales program. I also learned that your company is both growing and well-regarded, and that your new product line for the airline industry has received widespread and positive reviews.

By way of background, I expect to graduate (complete my tour of duty, etc.) on July 15th. I have worked as a sales intern with a local company, Blatchford, Inc., and I have also worked in the college admissions office. During the summers I worked at a local bakery selling an assortment of store goods, interacting with customers and operating a cash register.

I am a graduate of the John F Kennedy High School in Glompus, NY and its Leadership Training Institute. In high school I was a member of the National Honor Society and participated in more than 500 hours of community service.

Thank you for your attention and for taking the time to consider this letter. I can be reached by cell phone (240-555-5555 ) or by e-mail at peter@jobtoe.com.  My resume is attached for your records.

I look forward to hearing from you and would welcome the opportunity to meet and discuss any position which might be available.

Sincerely,

Peter G. Miller

Notice that the model letter does not mention any particular job or specific salary. Instead, it gives the writer — and the employer — some wiggle room, some things to discuss once everyone has a better chance to know one another.

Also, the letter functions as a quickie bio. It tells where the writer is today, when the writer will graduate or leave the service, mentions some work history and discusses the recipient’s company in positive terms.

Step 5: Once you have your letter written, you want to use a spell checker to assure that everything is properly spelled. Then you want to print out your letter and read it out loud.

Does the letter sound like something a national television anchor might say? Where is the wording rough? Where can sentences be improved? Are there better words to include.

Rewrite and rewrite you letter until it sparkles and says exactly what you want to say. Put in the time to make it right.

Once your draft is complete then ask other people to read it — out loud. Can they read it easily? Does everything sound right?

Make your corrections and repeat Step 5. Remember the goal here is not to hurry, it’s to market yourself in the best way possible.

When you’re satisfied with your first cover letter be sure to again spell check the material to assure that it’s right.

That’s it. You now have your first cover letter. Good hunting.

Here’s a model cover letter which may show some ideas.

How To Write Your First Cover Letter (With Sample) is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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