A broker is an intermediary between a borrower and potential lenders, such as banks and credit unions. Usually, they have several lending sources, which allows them to present you with more options than you might otherwise receive.

When you speak with them for the first time, it’s best to have a list of questions ready—knowing what to ask puts you ahead of the game.

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What will my fees and payments be?

When you’re buying a house, your budget is the first thing you should figure out—including any future fees or payments. Your mortgage broker will go over everything with you, including your current income, monthly payments, credit score, debt-to-income ratio, and more.

These numbers will help the broker figure out exactly how much house you can afford to buy and how much your future mortgage payments might be. They’ll also estimate your likely interest rate, closing costs, down payment, and property taxes.

Which types of mortgage do you offer?

There are two major types of mortgages: conventional mortgage loans and government-backed loans. Not all mortgage brokers offer all products.

Conventional loans

In a nutshell, a conventional loan is any mortgage offered through a private lender and not backed by a government entity. Lenders can set their own standards regarding qualifications and down payment requirements.

Government-backed loans

Government-backed loans are, of course, insured by the government. If you have trouble making your monthly payments, the government will try to help you avoid foreclosure. In addition, government-backed loans usually have lower interest rates and downpayment requirements than conventional loans.

That said, government-backed loans have various requirements that conventional loans do not. For example, you must live in a rural or eligible suburban area to get a

USDA loan

—urban areas are excluded.

Key Takeaway There are two main types of mortgage loans. Based on your financial circumstances, a mortgage broker can help you determine which one best suits your needs.

MORE:

Mortgage insurance vs. homeowners insurance: what you need to know

Which types of mortgage terms do you offer?

Ask your mortgage broker to go over various types of loans with you. You may find that more than one of them meets your needs. Here are the main types offered.

Conventional fixed-rate mortgages

A 30-year fixed-rate mortgage is the most common type of loan. Because the term is longer, payments are generally lower than other options. Plus, a fixed interest rate means that payments stay the same throughout the life of the loan.

Ultimately, the longer the term (or total amount of time you pay), the more you pay in interest. Therefore, you should always opt for a 20-year or 15-year contract if possible.

Adjustable-rate mortgages

As the name suggests, the interest rate of an ARM will increase or decrease as the market fluctuates. Your payment amount can change from month to month, making budgeting difficult.

Luckily, there are caps on how much an adjustable-rate mortgage can change, both periodically and over the life of the loan. That means you’ll always know the maximum amount you might have to pay in a month.

FHA loans

FHA (Federal Housing Administration) loans

are government-backed. They have lower credit score and down payment requirements than traditional loans, so they’re an excellent choice for people in a sticky financial situation. Unfortunately, there are limits on how much you can borrow, and you’ll have to maintain mortgage insurance for the life of the loan.

VA loans

The U.S. Department of Veterans Affairs backs VA loans, so they’re only available to current or former service members and their spouses. VA loans don’t require down payments and tend to have lower interest rates, but some fees and restrictions are involved. You’ll likely need to have funding fees and available reserve funds to qualify.

Key Takeaway The payments on a fixed-rate mortgage will stay the same for the life of the loan, while the payment on an adjustable-rate mortgage may change from month to month.

MORE:

Everything you need to know about interest-only mortgages

Are there income requirements?

There are no set income requirements to buy a home, but how much you make will determine how much house you can afford. Lenders will look at various sources of income, including employment, alimony, child support, and government benefits.

Ask your lender which income streams they consider, and provide documents to prove your income (such as pay stubs or bank account information). Then, they will tell you how much of a loan you can qualify for based on your funds.

What credit qualifications do you require?

All mortgages have credit qualifications, but they can vary greatly. Unless you get a government-backed loan, each lender can set its own requirements for credit score.

Generally, you’ll need a score of at least 620 to qualify for a conventional mortgage, while you can get an FHA with a score in the 500s. In addition, some private lenders offer “bad credit” options, but you’ll likely pay quite a bit more in interest.

Do you offer mortgage points?

Mortgage points

(or “discount points”) are an optional fee you can pay to the lender for a lower interest rate. Each mortgage point costs 1% of your total loan. So, for example, if you are taking a loan for $350,000, each point would cost $3,500.

Buying down a mortgage is especially beneficial for buyers who plan on staying in their home for a long time, as it can save tens of thousands of dollars over the life of the loan.

Key Takeaway Consider how long you plan on staying in the home and compare it to the time it will take to recoup the cost of buying points before deciding.

Do I need an escrow account?

An escrow account is basically a savings account that your mortgage lender manages. They are usually established at closing and are used to pay for property taxes and homeowners insurance.

Not all lenders require an escrow account, so ask your broker if you’ll need one and, if so, how much money you have to hold in escrow. In addition, find out what options you have for paying shortages and if you’ll get refunded for overpayments.

MORE:

What you need to know about mortgage statements

What are the interest rate and APR?

A high-interest rate can add tens of thousands of dollars to the total cost of your loan over the years. Therefore, you must ask your mortgage broker about your interest rate and APR.

The interest rate is determined by several factors, like:

Down payment amount

Credit score

Loan type

Location of the home

The APR includes the interest rate and any fees charged by the lender.

Pro Tip If you’re getting an adjustable-rate mortgage, ask your broker about the adjustment frequency. It’s helpful to know how often you can expect your interest rate and payment to change.

Do you offer a mortgage rate lock?

A mortgage rate lock (or lock-in) guarantees that your interest rate will stay the same until closing, regardless of market fluctuations. Rate locks are essential because you know your interest rate won’t change, even if you don’t find a home immediately.

Ask your broker if there are time limits on the rate lock and if they’ll change the rate should interest rates decrease after you lock in.

Is it possible to buy a house without my spouse?

Even if you’re married, you may want to buy a home in just your name. Whether that’s possible depends on if you live in a common-law state or a community property state.

In a common-law state, you can leave your spouse’s finances off the paperwork when applying for a mortgage. However, if you live in a community property state, you must share ownership of any assets you gain during your marriage.

In addition, certain government-backed loans require your lender to consider your spouse’s debt and income when you apply.

Do you offer preapproval or prequalification?

Ask your mortgage broker about the difference between preapproval and prequalification, as they typically don’t mean the same thing.

Preapproval: The lender reviews your income, credit score, debt-to-income ratio, tax returns, and more to give you an accurate mortgage loan figure.

Prequalification: The lender asks you questions about your income, credit score, debt, etc., but doesn’t verify any information. This means that the number you are given during prequalification can change.

Which one is best for you will depend on how serious you are about buying and how quickly you intend to move.

MORE: The 8 places you need to notify when you’re moving

What’s the down payment needed to buy a house?

Most conventional mortgage lenders require a 20% down payment to buy a house. So, if your loan is for $175,000, your down payment would be $35,000. However, some government-backed loans only require down payments of 3%.

It is important to note that you will have to pay for private mortgage insurance if you make a down payment of less than 20%. It could also mean higher interest rates and monthly payments.

Down payment assistance programs

If you qualify, it is possible to get down payment assistance from various local, state, and federal programs. Look for a mortgage broker familiar with the requirements and who can help you navigate the process.

MORE:

You can use a 401K for down payment—but it’s not a good idea

What other closing costs are there?

Closing on a home comes with a lot of fees and other costs—make sure you know what they are. Common costs include:

Credit card processing fees

Government filing fees

Attorney fees

Title processing

Loan fees

Your lender will likely also require you to obtain

homeowners insurance

before you close, and you may have to prepay property taxes for the year.

How long until my loan closes?

Of course, if you already have a house in mind, you’ll want to know how long it is before you can close. Having a target date will help you prepare for the move. And, while you’re waiting, ask your broker if there’s anything you shouldn’t do. They’ll often want you to avoid making big purchases or doing anything else that might affect your credit.

Is there a prepayment penalty?

Prepayment penalties allow the lender to collect an additional six months of interest if you pay off your loan early—but some states no longer allow them. Ask your mortgage broker if:

Prepayment penalties are allowed in your state

How long they’re in effect (often, they’re only applicable for the first two to five years)

Whether the penalty would apply if you refinance through the same lender at a later date

Pro Tip If you can pay off your mortgage early without penalty, it is a fantastic way to save money on interest payments.

Do I have to get homeowners insurance?

Most lenders require that you prepay the first year’s premium on a homeowners insurance policy before closing—and keep the policy until the loan is paid off.

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What should I know before talking to a mortgage broker?

Before talking to a mortgage broker, know (and have documentation of) all your important financial information, such as pay stubs, asset statements, credit score, and monthly bills.

What will the mortgage broker ask me?

The mortgage broker will ask you about loan purpose, employment, income, savings, assets, debt, down payment, and property use and type.

Do I have to get mortgage insurance?

Mortgage insurance is typically required on FHA and VA loans and for borrowers who pay less than a 20% down payment.

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