Mortgage brokers can be key players in identifying the best home loan for their clients. As the conduit between lenders and borrowers, they offer clients multiple options when it comes to choosing a rate and lender.

What is a mortgage broker?

A mortgage broker is a state-licensed professional who connects borrowers with lenders. Unlike a loan officer at a bank, who has access to only the bank’s loan programs, a mortgage broker is an independent professional who works with multiple (usually wholesale) lenders, or a professional with a brokerage firm.

A mortgage broker can help with:

  • Assessing your credit and finances
  • Comparing lenders and loan options
  • Guiding you through the application, underwriting and closing process

The key benefit, however: Your broker might have access to some great rates. Not only do brokers submit interest rate options to their clients; they also help navigate the many loan choices, from term to type.

You can research your mortgage broker’s background and qualifications by checking the National Mortgage Licensing System (NMLS).

Questions to ask a mortgage broker

Whether this is your first mortgage, a refinance or you’re an old pro, there are three basic questions every borrower should ask their broker:

1. What is the right type of mortgage for me?

Like cars, every mortgage type will get you to the same place (buying a home or refinancing), but the ride will be different. Your broker should understand your financial situation before recommending the best type of mortgage for you.

There are five basic types of loans:

  1. Conventional loans: The most common type of mortgage, a conventional loan is ultimately purchased by Fannie Mae or Freddie Mac.
  2. Jumbo loans: While technically a type of conventional loan, jumbos are for amounts too high to meet conforming limits.
  3. FHA loans: The Federal Housing Administration backs mortgages for borrowers who can’t afford a large down payment and have had some credit issues.
  4. VA loans: Service members and veterans are eligible for this type of financing.
  5. USDA loans: This government program provides financing in rural areas.

Mortgages also come in different loan terms. For example, someone who wants to minimize interest and pay down their mortgage faster might be better off in a 15-year mortgage. However, that option isn’t smart if you plan on selling the home in a few years.

These are important details your broker will assess to identify the best mortgage for you. A good broker will be able to match a mortgage with your short- and long-term goals. If your broker is quick to put you in a loan that doesn’t fit your situation, keep shopping around.

2. How much will my mortgage cost?

A mortgage broker is required to provide you with a loan estimate and itemize all its brokerage fees upfront. The broker gets paid by either you or the lender as a percentage of the loan amount, typically in the 1 percent to 2 percent range.

On the loan estimate, pay close attention to the interest rate of the loan and any other fees and costs charged by the lender. Based on the figures you’re given, you can see how the loan fits into your budget and also comparison-shop.

3. Should I use buy points or make a larger down payment?

  • Down payment: A down payment is a percentage of a home’s purchase price you pay upfront. Put another way, it’s the portion of the price you aren’t financing with a mortgage.
  • Mortgage points: A point is an upfront fee that reduces your mortgage rate for the life of your loan.

There is no single answer to this question, but your mortgage broker can help you understand the pros and cons of the different options, such as buying points.

Generally, homebuyers who don’t plan on staying in the home long-term might not want to spend cash on points (which push your interest rate down). Since you won’t have that mortgage for 30 years, the amount you spend on points will likely outweigh what you save on interest.

The same goes for a down payment. If you get a conventional mortgage and put less than 20 percent down, you’ll be required to pay private mortgage insurance (PMI) until your equity in the property reaches 20 percent. However, if putting down 20 percent means using all of your savings, then you might want to explore other options.

Before you choose a mortgage…

A mortgage is a long-term commitment, so do your research before you sign a contract. Find out the average interest rate for the type of mortgage you want. Rate tables are a great place to start, as they give you a snapshot of what multiple lenders are offering. Bankrate updates our rate tables regularly, so you can get current information.

If your broker is providing estimates that are not in line with the average rate, find out why and what you can do to get the rate you’re after.

When it’s time to select a mortgage broker, make sure that they come with recommendations and have substantial experience. Good brokers will collect important information about your finances as well as your goals before making recommendations, so if a broker pushes you toward a loan without knowing these things, consider this a red flag.