Reading and Understanding the ALTA Settlement Statement

Overview of the ALTA Settlement Statement

The ALTA Settlement Statement serves as the financial blueprint of your real estate transaction. This document provides a detailed accounting of all monetary aspects of the sale, presented in a ledger format that shows both the buyer's and seller's side of the transaction. 

Alison Sheshull, Director of Business Development at Bluegrass Land Title, says, “The settlement statement provides a full breakdown of the financials involved in a real estate transaction. You’ll have a clear picture of any money that is being paid and where that money is going.” The primary purpose of this statement is to ensure complete transparency in the financial aspects of your real estate transaction.

The settlement statement is organized into line items that track every financial element of the transaction. These entries are arranged in a clear debit and credit format, with separate columns for buyer and seller. The document details the purchase price, loan amounts, prorated taxes, insurance, closing costs, and other fees associated with the transaction.

Before closing day, all parties review this statement carefully to check for accuracy and completeness. 

Reading the ALTA Settlement Statement

The ALTA settlement statement is organized into several sections. Each section groups related charges and credits together, making it easier to track specific aspects of your transaction.

Demographic Information

First, you’ll find some basic information about the title company that is handling your file. While this is mostly for title company use, you should verify that the settlement location is accurate. For example, Bluegrass Land Title has several locations throughout Kentucky. Be sure that you’re scheduled to close where you expect to close.

The property information section comes next. This section includes the property address, names of the buyers and sellers, and lender information, if applicable. This section also lists two very important dates: the settlement date, which is when the closing takes place, and the disbursement date, which is when funds are actually distributed to various parties. 

Financial

The financial section of your settlement statement begins with the contract sales price and outlines the core financial elements of your transaction. This section shows the agreed-upon purchase price along with any adjustments that affect the final amount.

You’ll also see the loan amount if there is a mortgage, as well as any earnest money that has been deposited. This section will also include any seller concessions or credits that have been negotiated as part of the sale. All of these numbers create the foundation for calculating the final amounts due at closing.

Prorations/Adjustments

The prorations and adjustments section handles the fair division of ongoing property expenses between buyer and seller. Since many property-related costs are paid on an annual or semi-annual basis, these expenses need to be split based on when each party owns the home.

Take property taxes, for example. If taxes are paid annually but the closing occurs in June, the seller covers January through closing day, while the buyer takes responsibility for the remainder of the year. However, in Fayette County, Kentucky, the tax year runs from July 1 through June 30, which affects how these costs are prorated. Regardless of location, your title company will ensure each party is responsible for their correct portion of the tax bill. Similar adjustments apply to homeowners association dues, special assessments, and other recurring charges.

This section also captures any negotiated credits, such as seller contributions toward closing costs or repair credits determined during the inspection period. These adjustments ensure that both parties pay their fair share of property-related expenses based on their period of ownership.

Loan Charges

The loan charges section details all fees associated with establishing the mortgage. The section is divided into two parts: charges paid directly to your lender, which will be identified in the settlement statement, and charges paid to other service providers. Direct lender charges typically include items such as origination fees, points, and processing fees. Not every loan will have charges for each item. 

The second section represents other loan charges and lists fees paid to third parties for loan-related services, with each payee clearly identified. For example, you'll see who receives the appraisal fee, flood certification fee, or credit report charge along with its amount.

Impounds

The impounds section of the settlement statement details the establishment of the escrow account, which is used to manage ongoing property expenses like taxes and insurance. The lender requires this account to ensure that these payments are made on time throughout the year.

At closing, the buyer will need to provide an initial deposit to fund this account. This typically includes several months’ worth of property taxes and insurance premiums to create a sufficient reserve. After closing, a portion of the monthly mortgage will automatically go into this escrow account to cover these expenses when they come due. 

The settlement statement breaks down exactly how much is needed for each impounded item and how many months of reserves are being collected at closing. For example, suppose the annual homeowner’s insurance premium is $1,200 (or $100 a month). In that case, the lender may collect two months for the initial escrow deposit ($200) plus an additional cushion of 3 months in reserves ($300). So on the settlement statement, you might see, “Homeowner’s Insurance, 5 months @ $100/month.” 

Title Charges

The title charges include the fees associated with researching the property’s ownership history and ensuring a clear title transfer. This section typically represents one of the largest portions of your closing costs after loan charges.

These charges include the cost of the title search, which examines public records to verify ownership rights and uncover any potential issues with the title before closing. You’ll also see fees for both the lender’s title insurance policy and the owner’s title insurance policy. Additional charges will cover the handling of the closing process itself, including document preparation, attorney fees, coordination between parties, and the final closing. 

Commissions

The commission section outlines the payment for real estate services provided during the transaction. The statement clearly shows the total commission amount and specifies how much is being paid to each brokerage for their services in facilitating the transaction. Real estate commissions are typically calculated as a percentage of the property's sale price.

While commission structures were historically standardized, recent changes in the real estate industry due to the NAR Settlement have led to more flexibility in how these fees are structured and negotiated. On the settlement statement, these commissions will be listed as an amount, not a percentage.

Government and Recording Charges

This section outlines the fees paid to local government offices to officially document the real estate transaction. These charges ensure that all property records are properly updated to reflect the change in ownership.

Recording fees cover the cost of filing important documents like the deed and mortgage with the county clerk's office and creating an official public record of the transaction. Transfer taxes, which vary by location, are charges assessed by state or local governments when property changes hands. 

The title company handles the payment and filing of these charges to ensure that all documents are properly recorded.

Payoffs

The payoff section details all existing loans or liens that must be satisfied to transfer clear title to the new owner. This most commonly includes the seller's current mortgage, but may also include home equity loans, tax liens, or other obligations secured by the property.

The payoff amount consists of several components: the remaining principal balance on the loan, interest accrued through the closing date, and any processing fees charged by the existing lender. All of these amounts are automatically deducted from the seller's proceeds at closing.

The title company coordinates with each lien holder to obtain accurate payoff amounts and ensures that all liens are properly satisfied and released when funds are disbursed from the closing.

Miscellaneous Charges

The miscellaneous charges section encompasses any additional fees or credits that don't fall into the standard settlement categories. These items often reflect specific agreements made between buyer and seller during negotiations.

Common examples include home warranty premiums, pest inspection fees, or repair credits agreed upon after the home inspection. You might also find charges for final utility readings, cleaning services, or homeowner association documentation fees in this section.

These charges can appear on either side of the settlement statement, depending on who agreed to pay them in the purchase agreement. Each miscellaneous item is clearly labeled with a description and amount so you can verify that all negotiated terms are properly reflected in the final settlement.

Subtotals and Totals

The final section of your settlement statement brings together all the financial elements of your transaction to show the bottom line for both parties. This section calculates the total of all debits and credits to arrive at the final numbers.

For buyers, this section reveals the exact amount needed to bring to closing, after accounting for earnest money deposits and any credits received. For sellers, it shows the net proceeds they'll receive from the sale after deducting their mortgage payoff, commissions, and other expenses.

Tips for Reviewing the ALTA Settlement Statement

While it may be tempting to skip to the bottom line, taking time to review this document helps ensure a smooth closing day.

Agent Review

You'll receive the settlement statement before closing. Set aside time to review it carefully—this simple step can prevent delays and complications at the closing table. Remember that the settlement statement isn't just about the final number. Each line item represents a specific cost or credit that affects the transaction.

Agents should review the settlement statement first before sharing it with their clients. This initial review allows agents to verify all costs and credits are accurate, spot potential issues or discrepancies, and ensure the statement reflects all contract terms. Since clients may not be familiar with all the terminology or standard fees, your review helps identify any unusual charges or missing credits before your clients see the document. 

When you’re reviewing the settlement statement, it’s important to focus on both accuracy and completeness. Names should be spelled correctly, the sales price should match the contract, and the commission amounts should be distributed appropriately. 

Also, be sure to verify that there are no missing elements. Check to be sure that all agreed-upon terms from the contract, any contract addendums or amendments, and all seller concessions or credits are reflected in the settlement statement. 

For example, If the home inspection revealed a failing HVAC system, the buyer and seller might have signed an addendum where the seller agreed to provide a $5,000 credit at closing for HVAC replacement. This credit needs to be accurately reflected on the settlement statement as a seller concession/credit to the buyer, reducing the amount the buyer needs to bring to closing and correspondingly reducing the seller's net proceeds.

If you spot discrepancies or have questions about any items on the settlement statement, contact your title company right away. It's much easier to address concerns before closing day than to try to resolve issues at the closing table.

Once you’re satisfied with the settlement statement, pass it on to your client for their review.

Client Review

Unless your client is a seasoned real estate investor, they will probably be a little confused when they receive the settlement statement. When you send the ALTA to your clients for review, be sure that they know you have already checked the statement for accuracy and completeness. 

The main goal of the client’s review is to ensure that the final numbers match their expectations. On closing day, we don’t want buyers to be surprised by how much they owe and we don’t want sellers to be surprised by how much they’re receiving. 

A buyer might be surprised by their closing costs if they didn't realize their lender required 3 months of property tax reserves (eg, $700/month) in addition to the initial tax payment, adding an unexpected $2,100 to their closing costs.

Similarly, a seller might learn they're receiving less than expected because they forgot about the outstanding HOA dues (eg, $450) and the property tax bill they hadn't paid for the current year (eg, $2,800), both of which will be deducted from their proceeds at closing. 

When all parties review the settlement statement before closing, they can arrive at closing knowing exactly what to expect financially. Addressing any questions or concerns in advance creates a smoother experience for everyone at the closing table. And clear expectations mean your clients can look forward to closing day rather than worrying about unexpected costs or complications.