CHCP Settlement Statement Preparation 5 — Questions and Answers
Question 1: A buyer receives a $5,000 lender credit on the Closing Disclosure. How does this appear on the settlement statement?
- Debit to buyer, credit to lender
- Credit to buyer, reducing cash to close (Correct answer)
- Debit to seller, credit to buyer
- It does not appear on the settlement statement
Correct answer: Credit to buyer, reducing cash to close
A lender credit appears as a credit on the buyer's side, directly reducing the total cash the buyer needs to bring to closing.
Question 2: Under RESPA, which settlement cost can never be increased between the Loan Estimate and the Closing Disclosure?
- Third-party services where the borrower used the lender's provider list
- Lender fees (zero tolerance category) (Correct answer)
- Pest inspection fee chosen by the borrower
- Homeowner's insurance premium
Correct answer: Lender fees (zero tolerance category)
Lender fees and transfer taxes fall into the zero-tolerance category under RESPA/TRID and cannot increase from the Loan Estimate to the Closing Disclosure.
Question 3: Which line on the seller's settlement statement shows money the seller receives after all debits and credits are calculated?
- Gross amount due from seller
- Net proceeds to seller (Correct answer)
- Total loan payoff
- Cash to close
Correct answer: Net proceeds to seller
Net proceeds to seller is the final line showing the amount the seller actually receives after the purchase price is reduced by all debits such as commissions, payoffs, and fees.
Question 4: HOA fees that are paid monthly by the seller and are current through closing would appear on the settlement statement as:
- A debit to the buyer for the full year
- A seller credit and buyer debit for the unused portion of the paid period (Correct answer)
- No entry, since HOA fees are not prorated
- A lender escrow reserve
Correct answer: A seller credit and buyer debit for the unused portion of the paid period
If the seller has prepaid HOA fees covering a period beyond closing, the unused portion is credited to the seller and debited to the buyer.
Question 5: What is the primary purpose of the 'Summaries of Transactions' section on Page 3 of the Closing Disclosure?
- To disclose the loan officer's compensation
- To reconcile the buyer's and seller's debits and credits to show final cash amounts (Correct answer)
- To list all third-party service providers
- To disclose the escrow payment breakdown
Correct answer: To reconcile the buyer's and seller's debits and credits to show final cash amounts
The Summaries of Transactions on Page 3 presents a side-by-side comparison of buyer and seller debits and credits, arriving at cash to close and seller proceeds.
Question 6: A closing settlement statement shows a 'due from buyer' total of $312,450 and total credits of $308,200. What amount must the buyer bring to closing?
- $312,450
- $308,200
- $4,250 (Correct answer)
- $620,650
Correct answer: $4,250
$312,450 − $308,200 = $4,250; the buyer's cash due at closing equals total debits minus total credits.
Question 7: Which federal law requires that borrowers receive a copy of the settlement statement at or before settlement?
- The Truth in Lending Act (TILA)
- The Real Estate Settlement Procedures Act (RESPA) (Correct answer)
- The Equal Credit Opportunity Act (ECOA)
- The Fair Housing Act (FHA)
Correct answer: The Real Estate Settlement Procedures Act (RESPA)
RESPA requires that the HUD-1 (or Closing Disclosure under TRID) be made available to borrowers at or before settlement so they can review actual closing costs.
CHCP Settlement Statement Preparation 5
A buyer receives a $5,000 lender credit on the Closing Disclosure.
How does this appear on the settlement statement?