Understanding Loan Charges Using a Pre-Qualify Calculator

If you're ready to buy a home, it's a good idea to prepare by using free online affordability calculator tools that can provide estimates of how much you can afford to borrow, payment amounts, and payment changes based on interest rates and mortgage amounts. Although it's easy to focus on interest rates, you'll also want to consider lender and other charges. Mortgage lenders can provide an estimate of all charges associated with getting a mortgage loan. You may be surprised, and a little confused, by the lender and vendor fees. Can you negotiate these fees?

Affordability Can Depend on Reducing Costs

Lender fees and costs are charged by your mortgage company for making a loan to you. Generally, you'll pay higher fees if you have a lower credit score or put little or nothing down on the property. Lender fees may include points (a point is 1% of your mortgage amount), document preparation and copying fees, origination fees, and credit reporting fees. Feel free to negotiate lender fees, but what about vendor fees?

Prequalify and Get an Estimate of Costs.

Mortgage lenders can closely estimate fees and costs for your new home loan. This is helpful for determining how much cash you'll need at closing. Vendor fees are paid to third parties who provide services during the mortgage qualification process and period between the acceptance of your offer and "closing," which represents the transfer of title to the property to your name(s). Vendor fees may include title insurance, attorney or escrow fees, and an appraisal fee. Unlike lender fees, vendor fees are not likely to be negotiable. Costs can vary considerably according to regional custom and negotiations between you and the seller. Mortgage lenders and real estate professionals can help you estimate closing costs and the actual cost of your mortgage loan. The Truth In Lending Act requires mortgage lenders to calculate all costs associated with your loan and show it as an annual percentage rate (APR). This method of stating costs makes it easier to compare loans. For example, if one 30-year-fixed rate loan is offered at 6% with no points, and another is priced at 5.5% at a cost of 2 points, the APR helps you see which loan is a better deal for you.

What about Adding Fees and Costs to the Mortgage Amount?

Lenders may offer this option to help reduce the amount of cash required at closing, but if you're considering this type of plan, pay particular attention to your Truth In Lending (TIL) disclosure form. It shows the total cost of financing including interest paid over the life of the loan. If you decide to roll closing costs into your mortgage, your loan balance and monthly payments will increase. You'll be paying interest on a higher mortgage balance, and your home loan will ultimately cost more.

You can reduce the amount of finance charges on your mortgage by paying an extra amount toward your mortgage balance each month. Mortgage calculator tools can help you see how making additional payments can offset finance charges.

Karen Lawson
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.