How Much is Too Much to Spend on a Mortgage?

Something that is very important for you to be taking into consideration when purchasing a home or refinancing your current home are the closing costs.

I would love to tell you that closing costs on a mortgage are not expensive, but believe me they are. Once you add up all the fees’ involved, such as points, taxes, title insurance, county costs and various other fee’s, it really begins to add up, and the totals can be mind boggling.

The first thing you need to understand is that nobody in the mortgage industry works for free, so be prepared to pay at the closing table.

The total amount of fees’ depends on quite a few different things. For example, the percentage of the loan origination fees’ the lender is going to be charging you. Another expensive fee is the title search and insurance. The title fee varies by state and is determined by the amount of the home.

Closing costs on the average should never exceed 5% of the total amount of the purchase price, and this does not include the down payment.

The total amount of these fees’ does not all go to the lender who is financing the loan. Generally only the loan origination fee and the application fee go to the financial institution financing the loan.

The rest of the fee’s such as the appraisal, credit report, interest for the period in between closing and your first monthly payment, home owner’s insurance, title insurance, pro rated property tax, etc., go to their appropriate institutions.

Before you go to closing, the mortgage lender is required by law to send you a Good Faith Estimate (GFE).The GFE discloses an accurate estimate of all the fee’s you will be responsible for when you close the loan on settlement day.

Make sure you go over the GFE carefully with a fine tooth comb, and if there are any fees’ you don’t understand, call your lender or broker and ask them to explain it to you.

As I stated earlier, you must be prepared to pay the closing costs. Closing costs are not cheap, but you should not pay a dime more than what is the norm in this industry.

If your closing costs are somewhere between two and 5% of the amount of the mortgage, you should be in great condition.

If they are drastically higher, seriously consider finding another lender.

Remember, do your homework. Put yourself in a position to understand all the mortgage industry terms and conditions that fills up all the paperwork you will be signing.

Also, take your time and shop around for a mortgage, always look for the best rate at the lowest possible price.