The real estate process can be both exciting and confusing if you’ve never gone through the process before.
One of the points of confusion is the difference between all of the documents you have to review and sign in order to complete the deal.
As such, you are in good company. One of the most common questions we get is what the difference is between the ALTA Settlement Statement, a Closing Disclosure, and a Seller Net Sheet (or a Buyer Cost sheet for buyers).
In this post, we’ll not only explain the differences between these documents but also explain why they are each important in their own right.
What do they have in common?
Let’s start with what each of these documents have in common to understand why it is easy to get them confused.
First, they are all documents that outline closing costs such as the title insurance rates and other fees to buy or sell a property.
Two of them, the ALTA Statement and the Closing Disclosure, are created and given to the parties at around the same time.
And two of them, the Closing Disclosure and Closing Statement (ALTA), have similar names.
At first blush, it is easy to see why these documents get confused. Like many others, you may even wonder why have so many documents for the same thing.
But the truth is, although these documents have a lot in common, they actually serve very different purposes.
Allow me to explain…
What is an ALTA Settlement Statement and what is its purpose?
A settlement Statement is a standardized document that a buyer gets at a real estate closing that summarizes the terms and conditions of a loan, plus lists all charges and credits to the buyer and to the seller in a real estate settlement.
It is also used in a mortgage refinance to list all the charges.
There are actually 4 different types of ALTA Settlement Statements:
- Combined ALTA Settlement Statement – The combined ALTA settlement bundles together all transactions as they apply to both the buyer and/or the seller.
- ALTA Settlement Statement Cash – This is the version used for cash transactions for property purchases.
- Settlement Statement – This is the version used specifically for the buyers in the real estate purchase and contains only information pertinent to the buyer’s side of the transaction.
- Seller’s Closing Statement – This version of the ALTA Statement lists mostly the credits given to the seller and any fees extracted from the net proceeds that will impact the amount of cash the seller receives. It is the most similar document to but not exactly the same as a seller net sheet.
Is an ALTA Statement the same thing as a HUD-1 or a Good Faith Estimate?
HUD-1 Settlement Statement was similar but is no longer used in that form. Nor is a Good Faith Estimate (GFE for short).
Many people who have been involved with title insurance for some time still internally refer to these documuents as HUDs or GFEs but that isn’t entirely correct.
What is a Closing Disclosure and why do I need it with an ALTA Statement?
A closing disclosure statement is a document that outlines all of the financial details of your home purchase. It’s a summary of the loan terms, your monthly payment, and the estimated costs of taxes and insurance.
In short, it is a document that was created in 2015 as part of the Truth In Lending Disclsure (TILD-RESPA) to summarize the information that was important to homebuyers. Many buyers were confused by all of the details on an ALTA statement because it was so long and contains information for both the buyer and seller.
The closing disclosure also confirms your understanding of the loan and your decision to proceed with the mortgage. It includes information about the purchase price, the loan amount, the interest rate, and the estimated monthly payments. It includes a breakdown of the closing costs, including the mortgage broker’s fees, title insurance, and taxes.
According to a post on ALTA’s offical website:
“ALTA created model Settlement Statements based on the settlement statements that are used today in conjunction with the HUD-1. These Settlement Statements are intended to provide uniformity to the marketplace and may be used alongside the Closing Disclosure to help the industry meet its legal and regulatory obligations. If a Settlement Statement is used, the totals must match the Closing Disclosure.”
The nice part about the closing disclosures is that is is only intended for real estate buyers so it only contains information that buyers would want to know.
Whereas the ALTA statement contains both buyer and seller credits and charges.
What are the benefits of an ALTA Statement over a HUD-1 or Closing Disclosure?
This post directly from ALTA.org outlines it best:
“They were designed to be modified and expanded to allow agents to list any fees that may be applicable in their state or county, in addition to the national fees.
“They also disclose items that are not listed on the CFPB’s Loan Estimate or Closing Disclosure forms.
“The Settlement Statements also allow the settlement agent to disclose information like disbursement dates or other important dates to the transaction, including recording dates and tax payoff dates.
“Another benefit of using the ALTA Settlement Statements is the ability to disclose the actual premiums of title insurance charged to the homebuyer or seller during the closing transaction. In the majority of states, the cost of a homebuyer’s title insurance premiums will be inaccurate on the Closing Disclosure form due to a mandatory calculation method imposed by the Bureau in situations where the lender’s and owner’s title insurance policies are simultaneously issued.
“Many state regulators require settlement agents to disclose the actual costs for each fee the homebuyer is responsible for paying. The ALTA Settlement Statements help settlement agents disclose the accurate costs to homebuyers.”
If we have ALTA statements and Closing Disclosures, why is there also a Seller Net Sheet?
This is one of the most common questions we get and rightfully so.
The Seller Net Sheet is formatted very similar to the ALTA Settlement Statement so it is easy to be confused with one.
The biggest difference between the ALTA Statement and seller net sheet is that the ALTA Statement is only generated close to the closing once the final numbers have been given.
A seller net sheet is more of a Good Faith Estimate (GFE) and gives sellers estimates of what they might profit by selling a property. It can be generated anytime early in a real estate transaction cycle, and even before.
Another difference between the two that we already alluded to was that the ALTA Statement is the official document of a transaction and used by both parties as a “receipt” of the transaction. Whereas a seller net sheet is just intended as an estimate of the transaction, not the exact figures.
What about buyers? Is there a buyer net sheet?
Another question we get is if there a similar net sheet for the buyer of a property?
Actually yes, the buyer version of a seller net sheet is called a buyer cost calculator and outlines similar information as the seller net sheet but from the buyer’s perspective.
So in short…
The ALTA Settlement Statement is the most complete and arguably the important document as it outlines all of the credits and debits in a real estate transaction. It is used by lenders, title companies, buyer and sellers as a “reciept” of the transaction.
Although complete, many homebuyers found the ALTA Statement overwhelming.
Since the ALTA statement seems complex to the average Joe, in 2015, TRID (TILA-RESPA) changed the regulations to require a Closing Disclosure to be sent to buyers (but not sellers) three days before the closing (the “3 day rule”).
A Closing Disclosure’s purpose is to simplify and highlight only the items that a buyer cares about when they are purchasing a property or home. These include: How much is the total cost? What is my monthly payment? Etc.
The downside with both of these documents is that you don’t get them until days before the closing date.
That is why seller net sheets (and buyer closing costs) are so important. They give title companies, real estate law firms, and real estate agents quick estimates for sales and marketing purposes for their clients. And they can be generated before a property is even listed and at any time before closing day. But keep in mind that these are only estimates, and actual costs like tax prorations will likely fluctuate as they change daily.
That is the difference between an ALTA Settlement Statement, a Closing Disclosure, and a Seller Net Sheet.
This is why we have multiple documents for similar purposes. As you can see, they are all useful but in different ways.
Request a demo today to see if our Seller Net Sheet calculator is right for you.