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EXPLANATION OF CLOSING CHARGES

The Settlement Statement that you receive at closing is a summary of the costs associated with your real estate transaction. The Settlement Statement is divided into sections and the amounts are broken down by Borrower and Seller. Below is a brief explanation of what you might see on a Settlement Statement, with the second page being explained first to assist in understanding the document as a whole (like many things in life, it makes more sense if you go backwards).

THE SECOND PAGE - CHARGES: 

The charges to the Borrower and Seller are set out on the second page of the Settlement Statement, in sections 700 through 1300. The second page of the Settlement Statement is divided into three columns. The larger column on the left shows an explanation of the charge, and the smaller columns to the right show the dollar amount being charged to each party, with the Borrower showing on the left and the Seller on the right. Each section shows specific types of charges.

Section 700 shows the real estate commissions being paid as part of the transactions.
Section 800 shows fees being charged by the lender or mortgage broker involved in the transaction, and by other parties who have provided services necessary to the loan approval process, such as appraisers. In addition to fees being charged directly to the Borrower or Seller at closing, there may appear in the explanation column a summary of payments made outside of the closing (such as an appraisal fee that was paid prior to closing).
Section 900 contains items that are required by the lender to be prepaid, such as interest and insurance. Lender's typically collect interest from the date of closing until the 1st day of the following month (prepaid interest). Your payments would then begin one month later (for example, if you close on January 15th, the lender will collect interest through February 1st, and your first payment would be due on March 1st). Lender's also typically require that hazard insurance, and flood insurance (if required), be paid up for one full year.

Section 1000 contains amounts necessary to establish an impound account for the of taxes and/or insurance. Your lender may require, or you may choose, that your monthly payments include additional funds to be used for the payment of hazard insurance premiums and property taxes when they are due. This is commonly referred to as an impound or account.

If an impound account is established, the lender will collect an amount equal to one-twelfth of the amount due for taxes and insurance as part of your monthly payment. Depending on what month your closing takes place, the lender will need to collect a sufficient amount at closing to make sure that there are enough funds on hand to pay the bill when it comes due. Your insurance bill will typically be due one year after the day of closing, but because you may not make a payment for the two months after closing (based on prepaid interest as discussed above), your lender may require you to put 3 months worth of insurance in your impound account at closing. Additionally, because tax bills are due at the same time each year, regardless of when you close, your lender will require you to put a sufficient number of months worth of taxes in your impound account so that, when added to the amount collected in your monthly payment, there is enough money to pay the bill in December. This means that if you close in January, your lender may only collect 3 months worth of taxes, but if you close in August they may collect 10 months worth of taxes.
Section 1100 reflects charges associated your title policy and the signing of your documents and funding of your transaction. These include the escrow fee charged by your closing agent, any charges for the preparation of the documents being used in the transaction, the premium for the title insurance policies for both the new owner and the lender and other incidental fees such as courier services, tax certificates, and any State required fees.
Section 1200 shows fees required to record the documents used in your transaction.
Section 1300 shows miscellaneous charges that are being paid to third parties. Charges in  this section include Surveys, Home Owner's Association Assessments and Fees, Pest Inspections, Home Warranties, and taxes that are currently due against your property.

THE FIRST PAGE - SUMMARY:

The first page of the Settlement Statement shows a summary of the transaction as a whole. The top portion contains information used to identify the transaction by each party. For instance, it has the Borrower's and Seller's names, the property location, the name of the lender and loan number, the name of the closing agent and their escrow number. The lower portion of the first page is divided into four quadrants. The two on the left are for the Borrower and the two on the right for the Seller.

The upper left quadrant (Gross Amount Due From Borrower) shows items that are being charged to the Borrower, such as the sales price in a sale transaction or the payoff of any existing loan in a refinance transaction. Line 103 also contains the settlement charges that were totaled from the second page (line 1400). You may also see prorated amounts for taxes or assessments that have been paid in advance by the seller (this shows as a charge to the Borrower and a credit for the same will show on the Seller's upper quadrant). The gross amount due from the Borrower are shown on line 120.
The lower left quadrant shows amounts being credited to the Borrower, such as any earnest money, any option fee paid to the Seller, the amount of any loan the Borrower is getting and prorated amounts for taxes or assessments that have not yet been paid by the Seller. Taxes in Texas are paid at the end of the year, so taxes assessed against a property for 2007 will be due by January 31, 2008. Because the Seller is selling the property during the year, rather than waiting until the tax bill comes out and trying to find the Seller to get the amount due for the part of the year he owned the property, the Borrower is given a credit at closing for taxes that accrued from the first of the year until the date of closing. The Borrower is then responsible for paying the bill for the entire year when it comes due. A corresponding charge will show in the Seller's lower quadrant. The total credits to the borrower are shown on line 220.
The upper right quadrant (Gross Amount Due To Seller) reflects monies that are being credited to the Seller, such as the sales price. You may also see prorated amounts for taxes or assessments that have been paid in advance by the seller (this shows as a credit to the Seller and a charge for the same will show on the Borrower's upper quadrant). The gross amount due to the Seller is totaled on line 420.
The lower right quadrant shows amounts charged to the seller, such as any option fee paid prior to closing, the payoff on any existing loan, the total Seller's settlement charges from the second page line 1400, and prorated amounts for items that are accruing but have not been paid by the Seller, such as taxes. Taxes in Texas are paid at the end of the year, so taxes assessed against a property for 2007 will be due by January 31, 2008. Because the Seller is selling the property during the year, rather than waiting until the tax bill comes out and trying to find the Seller to get the amount due for the part of the year he owned the property, the Seller's proceeds are reduced at closing for taxes that accrued from the first of the year until the date of closing. The Borrower is then responsible for paying the bill for the entire year when it comes due. A corresponding credit will show in the Borrower's lower quadrant. The total reductions in the Seller's proceeds show on line 520.
The bottom line for both the Borrower and Seller show at the bottom of the first page (line 303 for the Borrower and line 603 for the Seller). This number is calculated by subtracting the lower quadrant for that party from the upper quadrant for that party. If money is required from either party in excess of $500.00, that money must be brought to closing in the form of a Certified or Cashier's Check, unless other arrangements are made with your closer prior to closing.