Fees and Rates and Points, Oh My! Questions to Ask Your Mortgage Broker

If you’ve done even a small amount of shopping for a mortgage, you know there are dozens — if not hundreds — of lenders available.

The variety is good because there’s a lender suitable for many kinds of buyers. But the selection can also make finding the right lender for you a challenge.

How do you sift through all the options? Some buyers use a mortgage broker to help them find the right lender.

We talked to a mortgage expert and sifted through buyer education information to compile this list of questions to ask your mortgage broker. Discussing these questions with the broker will help you select the best mortgage for your needs.

What’s a mortgage broker, and how is it different using one?

A mortgage broker is a person or company that helps connect buyers with lenders offering different mortgage products.

Brokers have relationships with a variety of lenders, so they can help you choose a lender that meets your needs, saving you the trouble of contacting multiple lenders to compare options.

As a buyer, you can often benefit from those relationships, and save time and money in the process.

Brokers must be licensed in the state where they operate. They are paid an origination or mortgage broker fee, usually between 1% and 2% of the loan amount. You may be responsible for the fees directly, or the broker may be paid by the lender who closes your mortgage.

Federal and state regulations require that mortgage brokers must disclose their fees upfront, and they can only be paid by one source — in other words, either by you or the lender; they cannot be paid by both. Ask your broker who pays the costs, how much they are, and when they will be collected.

Brokers generally only earn their fee when your loan closes, so they have a strong incentive to ensure you get a mortgage.

Why would you hire a mortgage broker?

Shopping for a mortgage is time-consuming and stressful. If you want quotes from different lenders, you have to apply with each lender, fill out applications for each lender, and undergo a credit check.

With a broker, you fill out one application and let the broker do the rest of the work. Because brokers have relationships with multiple lenders, they can easily compare rates and find loans with the features you want or need. The broker may even get preferred rates from some lenders.

If your finances or income are non-traditional in any way, a broker may be able to help you find a lender who accepts borrowers in your situation. Whether you’re self-employed, earn a commission-based salary, or have issues with your credit, the broker knows where to look for a mortgage.

Working with a mortgage broker can sometimes increase the cost of getting a loan because you’re adding in one more party to the mortgage process, so Richie Helali, mortgage sales leader at HomeLight Home Loans, suggests you begin by finding out if you can qualify for a mortgage without a broker’s help. Simply visit a bank or mortgage lender and talk to a loan officer.

After asking you some questions, the loan officer will have an idea of whether the bank can do something for you — provided all your qualifications check out. If your situation is unusual, they may suggest you find a broker.

“Most mortgage lenders are one-size-fits-all,” Helali says, meaning they have relatively straightforward guidelines for who they can and can’t lend money to.

“Brokers might specialize in not-one-size fits-all, finding that niche lender who can get you the loan you need.”

Aside from finding a loan for your unique finances, there may be other advantages to using a broker.

• Mortgage brokers are experts in the entire mortgage process, so they can answer any questions you have.
• Your broker may know about homebuyer assistance programs in your community and can recommend which program would be appropriate for you.

Once you’ve selected a loan, your broker can keep tabs on the loan approval process. Brokers can act as an intermediary if problems arise, possibly helping you avoid delays in mortgage approval.

Mortgage brokers have an incentive to do a good job because if you’re pleased with them, you may become a repeat customer or refer other homebuyers to them.

Mortgage questions to ask your broker

If you’re getting your first mortgage, you probably already have questions to ask your mortgage broker. As you and your broker discuss the answers, you’ll both get a better idea of what kind of home loan is best for your situation.

Essential questions to ask your broker include:

1. What type of home loan is best for me?

Mortgages fall into two main categories: conventional and government-backed.

1. Conventional loans are made by private lenders and are the most popular loan type. These loans typically cost less than a government-backed FHA loan, but they may have higher requirements for income, assets, and credit scores.
2. Government-backed loans are insured by the government and have unique features to accommodate buyers who might not be a good fit for a conventional loan.

Types of government-backed loans include:

• FHA loans. FHA loans accept down payments as low as 3.5% and accept lower credit scores than conventional loans.
• VA loans. Loans from the Department of Veterans Affairs are for eligible veterans and active-duty personnel, or surviving spouses. These loans may not require a down payment, and they feature low fees and no required mortgage insurance.
• USDA loans. These loans are designed for homebuyers in rural communities and accept low- and moderate-income buyers. Small and zero down payments are allowed.

2. What interest options do I have?

The most common interest options are for either fixed-rate interest or adjustable-rate interest mortgages.

With a fixed-rate mortgage, the interest rate stays the same for the life of the loan. Your monthly payments are predictable.

With an adjustable-rate mortgage (ARM), you pay a low introductory interest rate for a set number of years, such as three, five, or seven. When the initial period is complete, the interest rate adjusts to the then-current market rate. After that, the rate typically adjusts annually.

There’s no way to know what interest rates will be in five years, so ARMs are unpredictable. If you only plan to keep the house for a few years, however, you may find that getting an ARM will save you money.

3. What kind of rate can I qualify for?

Many factors can affect the interest rate you’ll pay on a home mortgage. They include:

• Your credit score. The higher your score is, the better interest rate you’ll be offered.
• Your down payment. With a larger down payment, lenders see you as less risky. You’ve already invested a lot in the property, so lenders believe you are less likely to default on the loan.
• The size of the loan. Lenders may charge more if your loan is small or very large.
• The term of the mortgage. You’ll pay a lower interest rate on a loan with a 15-year term compared to a 30-year term.
• Loan program. The rates on a conventional loan may differ from rates on a VA or FHA loan.

4. Should I pay for points?

The lender may give you the option of paying “points,” more specifically called discount points, to lower the interest rate on the loan. With discount points, you essentially pay some interest upfront in exchange for lower monthly payments.

One point costs 1% of the loan amount, so on a $250,000 loan, one point would cost $2,500. A point will typically reduce your total interest rate by around 0.25%.

Whether it’s worth paying points depends on how much the interest rate will be reduced and how long you plan to own the home. (If you plan to keep the house a long time, you’ll get more benefit from the lower interest rate.)

5. How much do I need for a down payment?

The amount of money you need for a down payment depends on the price of the home you’re buying and the kind of loan you are getting.

The more money you put down, the easier it should be to qualify for a loan, and the better interest rate you’ll get.

If you put down less than 20% of the home price, you’ll have to pay for private mortgage insurance (PMI) of some form. PMI increases the cost of your monthly payment, but it can usually be dropped when you pay at least 20% of the loan principal amount.

6. Am I qualified for down payment assistance?

State and local governments and some nonprofits have programs to help buyers who have limited money saved for a down payment. They may offer grants to cover part of the down payment, provide a forgivable second mortgage, or have a savings match program.

Ask your broker about any local programs you might qualify for. Also, check with your state housing authority to see what down payment assistance programs are available in your area.

7. How much will my home loan cost?

In addition to monthly payments to pay back the mortgage, you must pay various fees at closing. These fees cover services such as the appraisal, title review, and attorney fees. You’ll also have to pay for a year’s worth of homeowner’s insurance and put a portion of your upcoming property taxes into escrow.

Closing costs averaged $6,087 in 2020, including taxes, according to ClosingCorp, which provides closing cost data and technology for the mortgage industry.

8. Are there lenders you recommend that have lower fees?

While costs like property taxes and appraisal fees are unavoidable, lenders do have discretion in some fees they charge. The amount a lender charges for fees such as origination fees and application fees vary from lender to lender. Loan origination fees are frequently between 1% and 2% of the total loan amount, which could be up to $5,000 on a $250,000 loan.

Ask your broker if any lenders they work with offer reduced fees. Don’t hesitate to ask them to get you fee estimates and to compare lenders.

9. What are the typical closing time frames from your preferred lenders?

The average time to close for all mortgages was 51 days in April 2021, according to ICE Mortgage Technology, which provides a cloud-based platform for the mortgage industry.

Do your broker’s lenders close in a similar timeframe? You probably want to be able to close quickly, especially if you’ve already sold your house or you want to quit paying rent and move into your new home.

10. Do you offer preferred rates with any lenders?

Even a small discount on an interest rate can have a big impact over 30 years.

Say you took out a $200,000 loan at 3% interest. Over 30 years, your payments would total $303,555. At 3.1%, just one-tenth of a percentage point higher, you’d pay almost $4,000 more over 30 years.

11. Will I need to pay for private mortgage insurance?

Private mortgage insurance (PMI) protects the lender in case you stop making payments on your loan. The lender will generally require you to pay for mortgage insurance if you put down less than 20% of the purchase price. Your PMI will either be paid directly as an additional monthly premium or could be paid by the lender (usually in exchange for a slightly higher rate). Conventional, FHA, and USDA loans will all require some form of mortgage insurance if you put less than 20% down. VA loans have a funding fee, but do not require mortgage insurance.

Typically, mortgage insurance costs between 0.5% and 1% of the value of your home each year.

12. Can you walk me through your process?

While you’re looking for specific answers to many questions you ask your broker, ask this question to get an overview of everything that happens when you apply for a loan.

You may feel more comfortable if you know when in the process each step takes place and why it’s happening.

13. Which lenders do you work with, and how do you choose them?

One of the advantages of working with a broker is that they have relationships with multiple lenders. Helali notes that lenders who work with brokers often don’t have their own consumer-facing side, so you couldn’t directly apply to these lenders on your own.

Just as brokers work with lots of lenders, lenders work with multiple brokers. If you talk to more than one broker, you may find they work with many of the same lenders, Helali adds.

14. What are your broker fees?

Typically, mortgage brokers charge fees equal to between 1% and 2% of the mortgage amount.

Sometimes the lender pays the fee, and sometimes the borrower does, so be sure to find out how your broker works. As we mentioned above, federal law prevents mortgage brokers from receiving money from both the lender and the homebuyer.

15. What documents do I need to have on hand?

The lender will require a variety of paperwork to verify your income, savings, and other financial details. You’ll probably need these items, but your broker may list more:

• Two years of tax returns, including W2 forms and 1099s
• Pay stubs for at least the last month
• Bank statements for at least two months
• Statements for retirement accounts and investment accounts
• Rental history, usually a year’s worth of canceled checks written to your landlord
• Credit report, which the lender will pull from all three credit bureaus — you’ll have to sign a document giving permission to access the reports
• Gift letter if anyone gave you money to use for the down payment

16. How do you manage rate locks?

Because mortgage rates change, your lender may offer a rate lock that guarantees the rate won’t go any higher before you close on the house.

A rate lock may guarantee the rate for a set period, such as 30 or 60 days. A short lock may be free, but the lender may charge a fee of between 0.25% and 0.50% of the loan amount for a longer rate lock.

If you decide to get a rate lock, ask your broker about correctly timing the lock. You want to be sure it will still be in effect when your loan closes.

5 tips to get the best results from your broker

1. Be upfront about asking about fees and rates. “Ask ‘how much is it going to cost me and what do the rates look like?’” before you decide to work with a particular broker, Helali says. “Always shop around. The worst thing that could happen is that you don’t find a better deal. The best thing that can happen is that you may get the exact same thing that you need for a little less.”
2. Tell the broker why you need help finding a mortgage, such as a recent foreclosure or because you want a bank statement loan. The broker needs that information to find a willing lender for your personal circumstances.
3. Ask your broker the best method for communication. You’re paying them, so they should be responsive to your questions and concerns.
4. Find out how the broker will provide updates on the process, and how often. Will the broker send texts or emails, or is there an online portal with a dashboard where you can track the loan?
5. Spend time analyzing your finances before you meet with the broker. Know how much you can afford for the down payment and closing costs and the maximum monthly payment you’re comfortable with.

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