If youre shopping for a home loan, you might choose to go through a mortgage broker. The main service a broker offers is to find home loans and help you compare them. And a broker will typically help you with submitting your loan application and let you know how to prepare for closing.
Before you agree to work with a broker, youll want to find out if you owe them any money for those services. The answer depends on how the broker is paid.Â
There are a couple ways mortgage brokers earn money, and their pay generally works out to a percentage of each loan they close.
Guiding consumers through the borrowing process is a big responsibility, so the law requires brokers to get licensed before they can work in this field. For those who are able to jump through the necessary hoops and grow a client base, the commissions can add up to a lucrative annual income.
Getting a mortgage can be a complicated process. That’s why many homebuyers turn to mortgage brokers to guide them through it. But how much do these professionals actually make?
In this article, we’ll take an in-depth look at how mortgage brokers get paid and how much they typically make per loan. Read on to learn more about this commission-based field and how brokers earn their income.
What is a Mortgage Broker?
First, let’s start with a quick overview of what mortgage brokers do. Mortgage brokers are professionals who facilitate mortgage loans for borrowers. Rather than working directly for a bank or lender, they independently work with multiple lenders to find the best loan options for their clients.
The mortgage broker serves as an intermediary between borrowers and lenders. Their responsibilities include:
- Meeting with clients to understand their financial situation and goals
- Collecting necessary paperwork like bank statements and tax returns
- Comparing different loan programs from various lenders to find the best fit
- Negotiating the loan details and interest rates with lenders
- Guiding clients through the entire loan application and approval process
In essence, mortgage brokers do the “legwork” to get their clients a mortgage loan. Their expertise and industry connections can help borrowers save time and money in obtaining home financing
How Do Mortgage Brokers Make Money?
The vast majority of mortgage brokers work on commission. Here are the two main ways they earn income
1. Borrower-Paid Commissions
In many cases, the borrower pays the mortgage broker directly for their services. This payment is called a borrower-paid commission.
The typical commission rate is 1% to 2% of the total loan amount. So on a $300,000 mortgage, a broker charging 1.5% would earn a commission of $4,500.
The borrower pays this fee at closing once the loan is finalized. The lender collects this commission and passes it on to the broker.
2. Lender-Paid Commissions
Alternatively, the lending institution itself may pay the mortgage broker. This is known as a lender-paid commission.
Lender-paid commissions are also typically 1% to 2% of the loan amount. The main difference is the lender pays the broker out of its own funds.
However, the borrower may still indirectly pay this commission if the lender folds it into the loan origination fee or interest rate. So lender-paid commissions don’t necessarily save the borrower money in all cases.
The compensation model can vary by broker, market, and type of loan. In some cases, the broker may collect commissions from both the borrower and lender. It’s important to ask about commission structure upfront before committing to work with a broker.
Factors That Affect Mortgage Broker Commission Rates
Mortgage brokers don’t all charge the same commission rates. Here are some key factors that can determine how much a broker earns:
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Experience level – More experienced brokers may command higher commission rates. Newer brokers tend to charge less when first starting out.
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Loan type – Commissions are typically higher on more complex loan products like jumbo or subprime loans that require more broker expertise.
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Loan amount – Brokers usually make more in raw dollar amounts on bigger mortgage loans because the commission is a percentage of the total amount borrowed.
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Market conditions – When interest rates are low and demand is high, brokers can charge more. They may offer discounts when demand is slower.
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Borrower’s financial profile – Borrowers with excellent credit and finances are more desirable clients for brokers. Less qualified borrowers may pay higher commissions.
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Geographic location – Commission rates can vary by state and metro area based on market norms and competition.
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Lender agreements – Some lenders offer higher payouts to brokers who funnel them more loan business.
As you can see, mortgage broker commissions can range widely based on many factors. Be sure to shop around and compare options.
How Much Do Mortgage Brokers Make Annually?
It’s difficult to pinpoint exactly how much mortgage brokers make per year since it fluctuates based on commissions and loan volume. However, here are some averages:
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According to the Bureau of Labor Statistics, the median annual salary for loan officers, which includes mortgage brokers, is $63,960.
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PayScale data shows mortgage brokers earn between $47,000 to $135,000 annually on average.
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The top 10% of mortgage brokers earn $200,000 or more per year.
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Wages tend to be higher in major metro areas like New York and California.
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Senior brokers with 10+ years experience can make over $150,000 annually.
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New brokers often start out making $30,000 to $50,000 in their first year as they build up clients.
Is a Mortgage Broker Worth the Cost?
Paying a mortgage broker’s commission definitely adds to your upfront costs. But for many homebuyers, it’s worth the expense to have an expert guide. Here are some potential benefits of using a broker:
Access to more loan options – Brokers have relationships with dozens of lenders and can present you with far more choices than going direct to a retail bank. This increases your odds of qualifying and finding the lowest rate.
Saves you time – A good broker handles all the paperwork, communication with lenders, and loan processing for you. This lifts a huge burden and headaches off the borrower.
Expert guidance – Brokers are pros with inside industry knowledge. First-time buyers, in particular, benefit from their hand-holding and coaching throughout the process.
May get you a better deal – With their lender connections, brokers can sometimes negotiate lower rates or fees the borrower couldn’t get on their own.
Coordinating multiple services – The broker can act as point person and coordinate appraisers, inspectors, and other services.
Of course, not all brokers are created equal. It pays to vet them carefully and check their track record and reviews. But an experienced professional broker is often worth the money for smoother mortgage experience.
The Bottom Line
Mortgage brokers provide helpful services to borrowers navigating the home loan process. And they deserve fair compensation for their work. As commission-based professionals, mortgage brokers earn 1% to 2% of a loan’s total dollar value. This translates to $50,000 or more in annual earnings for successful brokers.
While paying a broker commission adds to upfront costs, many find it’s worth the expense in exchange for expert guidance and a smoother loan process. Understanding brokers’ commission structure helps you know what to expect as part of the home buying journey.
Is it worth it to go through a broker?
Whether a brokers services are worth the fee depends on how much comparison shopping youre going to do on your own.Â
The Consumer Financial Protection Bureau (CFPB) finds that almost half of homebuyers dont shop around before applying for a mortgage. If youre in that group, youll probably leave a lot of money on the table. Often, different lenders will offer the same borrower different mortgage rates, and there could be a gap of 0.5% between the most expensive home loan youre offered and the least.Â
The savings from finding the cheaper option can be significant. The CFPB reports that taking out a $200,000 mortgage loan with a 4.0% interest rate instead of a 4.5% rate leads to savings of $3,500 in the first five years of the loan.Â
So, should you pay a broker to find the lowest rate for you? If the broker charges a 1% fee, that works out to $2,000 on a $200,000 loan, and you come out ahead. If the broker charges 2%, youre paying $4,000, and the cost outweighs your savings.Â
If you arent going to research a bunch of lenders yourself, it may make sense to pay a brokers fee as long as they arent taking an especially large cut.Â
Learn the difference between mortgage brokers and lenders.
How do mortgage brokers get paid?
Brokers can be paid a salary plus commissions for the loans they close, or they may be paid only in commissions.
Brokers typically earn 1% to 2% of the amount of each loan they close. So, for example, a brokers fee might be in the range of $2,000 to $4,000 on a $200,000 loan or between $5,000 and $10,000 on a $500,000 loan.
Some brokers charge their fee to the borrower. In that case, you either pay the fee at closing, or you increase the loan amount to cover the fee.
Alternatively, brokers can be paid by the lender. When a lender is paying the fee, they make sure the interest theyre charging the borrower is high enough to offset that expense.
By law, a mortgage broker cant be paid by both the borrower and the lender. And their fee cant be tied to the loans interest rate. That prevents brokers from trying to steer borrowers to expensive loans to increase their own earnings.
Federal law also states that a mortgage cant have fees above 3% and be considered a qualified mortgage. (A qualified mortgage is a mortgage that meets a set of requirements protecting consumers, and it comes with some legal protections for lenders, too.) The law counts broker fees toward that limit, so it sets a cap on the fees brokers can charge if they want to offer loans in this category.Â
How Much Does a Mortgage Broker Make?
How does a mortgage broker get paid?
A mortgage broker’s total compensation can be paid through various means, including cash or an addition to the loan balance. If a borrower pays the broker, they will do so at closing. However, if a lender pays, this fee is sometimes rolled into the loan cost, meaning the borrower may still be on the hook.
Do mortgage brokers work for banks?
Unlike loan officers, mortgage brokers don’t work for banks. They operate independently and must be licensed. They charge a fee for their service, which is paid by either you, the borrower, or the lender. The fee is a small percentage of the loan amount, generally between 1% and 2%.
How much does a mortgage broker charge?
On average, mortgage brokers charge a commission of 2.25% for each loan. While the loan terms might vary, federal regulations prohibit brokers from charging more than 3% of the total loan amount. For example, a mortgage broker might charge 2.25% of a $500,000 loan, which is $11,250 in commission.
How much money can a broker make on a home loan?
Under current law, they are not allowed to be paid by both the borrower and the lender. So, for every $100,000 of the loan amount, the broker can expect to receive $1,000 to $2,000. With home loans averaging $430,500 in March 2023, for example, a broker could earn $4,305 to $8,610 on an average deal.