Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which of the following documents itemizes all settlement costs including lender charges?

1. Agreement of sale

2. HUD-1/closing Disclosure

3. Form 1003

4. Forbearance agreement

The correct answer is: HUD-1/closing Disclosure

The document that itemizes all settlement costs, including lender charges, is the HUD-1 or Closing Disclosure. This document serves a critical role during the closing process of a real estate transaction by providing a detailed breakdown of the various expenses and fees that the buyer and seller will encounter. The HUD-1 was used in transactions prior to the implementation of TRID (TILA-RESPA Integrated Disclosure), after which the Closing Disclosure form was introduced for most residential purchase transactions. Both documents include information on loan terms, monthly payments, and a list of all charges and credits associated with the transaction. By ensuring transparency, the HUD-1 or Closing Disclosure allows borrowers to better understand the financial aspects of their mortgage closing, which empowers them to make informed decisions. The detailed itemization helps prevent any surprises at the closing table, as all costs are communicated upfront. In contrast, the other documents listed serve different purposes: the Agreement of Sale outlines the terms of sale but does not detail settlement costs; Form 1003 is the mortgage application form that collects borrower information and details of the mortgage loan; and a Forbearance Agreement is designed to modify the terms of a loan due to a borrower's financial hardship, rather than detailing settlement costs.