So … you got your mortgage! Congratulations! The moment that a closing is scheduled is a very exciting moment for anyone, whether they’re a first-time homeowner or a seasoned property investor.

What happens next? In particular, what are your financial obligations at the closing itself?

The loan-related costs you’ll need to pay vary; they depend on the type of loan you’re receiving and on its size.

They may include any or all of the following:

So how do you know what will be included in your loan?

The reality is that different lenders will charge different fees, and it’s important that you understand at the beginning what will be required of you. The closing costs may even determine your choice of a loan or of a lender.

Some fees may even be negotiated, though you need to remember that a lender who is eager to negotiate is getting something back from the deal—a higher interest rate, for example, or a more substantial down payment.

This is where your mortgage professional comes in. He or she is your partner in the loan application process and will be on hand to explain to you all the various components of your loan in general — and what will be required of you at closing in particular.

The mortgage application process has myriad steps—or so it often seems to the borrower! The last stage in the process is the underwriting stage—when someone (either a committee made up of people, or an automated system) analyzes all of your submitted application to determine, essentially, whether or not you’ll be able to repay the loan.

What underwriting does in a sense is take a snapshot in time of your credit, employment, and assets, and makes the final determination about whether to finance your mortgage. Underwriting is about figuring out how much risk the lender is taking in lending the money for the mortgage.

Many lenders now use an automated system that looks for characteristics of a good risk (credit, available assets, time on the job, etc.) and will instantly approve a loan for someone whose numbers fall into that category. In particular, the system is interested in ratios: for example, your housing expenses should not exceed 28 to 33 percent of your earnings for a certain loan type.

The system uses much more information than used to be accumulated about qualifications, so it’s not always easy to predict what loans it will consider good risks. Your mortgage specialist can explain the criteria to you in more detail and specific to your own situation.

The system also may refer your loan decision to an underwriter if you don’t fall into the “close to perfect” category; that underwriter will review the application and add in additional information, some of it admittedly subjective.

Underwriting is the final step in your mortgage application, but an important one, and it can sometimes take longer than is comfortable. This is a time that calls for patience. Hopefully, it will end … with a closing!

You’ve probably never heard of 125 percent mortgages … not a lot of people have! They’re first and second mortgages that total 125 percent of a property’s market value … more than the property is actually worth at the time of the loan.

Why would a lender want to loan out more than a property is worth? Some lenders see them as stable: since borrowers must have nearly perfect credit, they have a strong incentive to keep that credit rating, so are more likely than others to repay the loan. In addition, lenders are assuming that the property owner will not sell the property until the loan is paid, and that the value of the property will increase throughout the life of the loan.

Why on earth would anyone want that kind of mortgage? If the property you own is in a stable neighborhood and you anticipate keeping it until the loan is paid, then it might make sense for you. What it does is allow you to access a line of credit at a reasonably low interest rate so that your money can work for you in other ways.

A larger mortgage may sound frightening to some, but it may be better than nondeductible consumer loan if you really need the extra cash. Many financial planners, however, caution against this kind of credit, as the risk—potentially losing your home—is so very high.

Only you and your financialplanner/mortgage expert can determine what is right for you. At Avrus, we look at every client individually and help him or her determine what product best suits their particular needs.