HUD is short for Housing and Urban Development. The Housing and Urban Development or HUD Settlement Statement refers to a document issued when a borrower takes out a loan to purchase real estate. To record a HUD Settlement Statement, it is essential to understand what this statement entails. The HUD Settlement Statement consists of basic information of the parties involved, such as the buyer and seller, property details, settlement agent details, and the figures (numerical data) involved. These figures and their recording in financial books will be discussed in detail in the paragraphs that follow.
How to Record a HUD Settlement Statement
The list of transactions involved and their treatment in the books will be sorted out in this section. All these transactions must be entered incorrectly.
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 be made for adjustments that the seller has settled in advances such as prepaid taxes, homeowner association dues, and expenses of the sort
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 payment of mortgage loans or other owed liens will be debited in the seller’s account
- Debit entries will also consist of closing costs paid by the seller on behalf of the buyer
- Lastly, any adjustments for items unpaid by the seller, for instance, pro-ration of property taxes, security deposits, and items that are to be credited to the buyer
The list of transactions involved and their treatment in the books 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 made to the seller, as mentioned above)
- Personal Property
- Settlement charges paid by the buyer
- Any amounts due from the buyer
- Adjustments for items that have been settled in advance by the seller may be shown as miscellaneous expenses
Credits – will list the amount paid by the buyer or those paid on behalf of the buyer of the HUD Settlement Statement:
- Deposit made by the buyer
- The loan amount
- The amount owed by the seller to the buying party is a credit entry and must be recorded. This is the double-entry made in opposition to point no. 5 made in the list of seller’s debit transactions
- Property tax and assessment pro-ration credits from seller to the buyer of the HUD Settlement Statement
- Lastly, any additional credits to the buyer will be entered here, be it from any source, if not from the seller.
Now that both parties’ debits and credits have been identified in the HUD Settlement Statement, these will be entered. The total balances on both accounts shall be estimated in the accounting books to serve bookkeeping purposes. The treatment of these entries will be carried forward to General Ledger for all other accounts in the accounts chart. The HUD Settlement Statement is necessary to account for both parties’ debits and credits in a HUD settlement transaction. This statement is necessary to protect both the buyer and seller in the HUD transaction and ensure that all the financials have an accounting.
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