If you’re shopping for a mortgage, you may be wondering – do mortgage loan officers get paid commission? Understanding how loan officers are compensated can help you make a more informed decision when choosing a lender.
The short answer is yes – most loan officers do earn commission as a major part of their overall compensation But the commission structure can vary significantly depending on the type of lender they work for
In this comprehensive guide. we’ll break down the typical pay structure for different loan officers. including
- How commission is calculated
- commission vs. salary
- The pros and cons of commission-based pay
- Questions to ask your loan officer
- Tips for getting the best deal
Plus, we’ll explain how knowing your loan officer’s commission can help you save money on your mortgage.
How Is Loan Officer Commission Calculated?
For loan officers who earn commission, their payout is generally based on two factors:
1. Loan Volume
The dollar amount of loans they originate is a primary driver of commission. On a $200,000 mortgage, the loan amount determines the officer’s base commission payment.
2. Back-End Fees
Additional fees charged to the borrower, like origination fees or rate add-ons, can increase the loan officer’s payout. These back-end fees are where commissions can really add up.
To illustrate, let’s say a loan officer earns 0.5% commission on the loan amount, plus 50% of any back-end fees charged.
On a $200,000 mortgage with $2,000 in fees, here’s how their commission would work out:
-
Loan Amount: $200,000
-
Loan Officer Commission Percentage: 0.5%
-
Commission on Loan Amount: 0.5% x $200,000 = $1,000
-
Back-End Fees Charged: $2,000
-
Loan Officer Split on Fees: 50%
-
Commission on Fees: 50% x $2,000 = $1,000
-
Total Commission: $1,000 + $1,000 = $2,000
As you can see, those back-end fees can really drive up a loan officer’s payout. And this is precisely why understanding commission structures is so important for borrowers.
Commission vs. Salary for Loan Officers
While commission is common, not all loan officers are paid this way. Compensation structures generally fall into two buckets:
Commission-Based
- Mortgage brokers
- Mortgage lenders
These loan officers earn money based on loan volume and fees as described above. They only get paid if they close loans.
Salary-Based
- Banks
- Credit unions
- Direct mortgage lenders
Salaried loan officers receive a fixed annual wage, plus usually a smaller bonus per loan closed. For example, 0.25% of the mortgage amount.
Banks often pay salaried loan officers to incentivize selling their own loan products rather than shopping rates across multiple lenders.
Pros and Cons of Commission-Based Pay
Should you avoid commission-based loan officers? Not necessarily – it really depends on your personal situation. Here are some key pros and cons to understand:
Pros
- Motivates great service to close your loan
- Access to wholesale lender rates from broader market
- More flexibility to reduce fees/costs for borrowers
Cons
- Incentive to upsell products for higher commissions
- Potentially higher overall fees to generate higher payout
- Loan denial loses them income, may discourage marginal applicants
No compensation model is inherently good or bad. But you want full transparency into how your loan officer is paid so you can align with someone who best matches your mortgage needs and profile.
Questions to Ask Your Loan Officer About Commission
Don’t be afraid to have an open and honest discussion about commission and fees. Here are some key questions to ask:
-
Are you paid mostly commission or salary? What does your compensation plan look like?
-
Specifically, what percentage do you earn from the loan amount versus fees?
-
How can we structure the fees to ensure I’m getting the lowest costs possible?
-
If banks offer your role as salaried, why did you choose commission instead?
-
How will commission impact the rates and products you recommend for my situation?
Get the full picture from the start before moving forward together. A loan officer who is transparent about their pay model is more likely to partner in your best interest.
Tips to Get the Best Deal with a Commission-Based Loan Officer
If you want to work with a commission-based loan officer and save money, use these tips:
-
Shop multiple officers – Compare quotes to leverage them against each other on fees.
-
Avoid unused services – Don’t pay for rate lock extensions or other add-ons you don’t need.
-
Supply documents ASAP – Quick approvals earn loan officers faster payouts.
-
Get lender credits – Ask for a portion of fees to be paid by the lender as a credit.
-
Lock early – The longer your loan stays in play, the more time an officer has to pitch you additional products.
-
Request salaried alternatives – Even at commission-based lenders, ask if any salaried loan officers are available.
The bottom line is loan officers have a right to earn commission. But you have a right to understand how that pay model could impact your costs.
Should You Ever Refuse to Pay Loan Officer Commission?
Some unethical loan officers “double dip” by taking undisclosed kickbacks from title or escrow companies on top of the lender-paid commission. If you suspect this dual commission, you may want to alert the lender or file a complaint with the Consumer Financial Protection Bureau.
However, if the loan officer earns only the disclosed compensation from their direct lender, refusing to pay their commission could get you sued for breach of contract. Your loan application forms likely authorized the lender to pay commission from your funded loan.
If you are uncomfortable with the fees charged, your best recourse is negotiating them upfront or walking away to find a more affordable lender. Unless fraud is involved, you can’t simply refuse commission owed per the loan estimate.
Is a Salaried Loan Officer Always Better?
In light of potential commission abuses, many borrowers wonder if they should only work with salaried loan officers.
The answer depends on your priorities:
For simplicity – Salaried loan officers provide a predictable, commission-free experience. Though watch for “junk fees” added by their employers.
For low rates – Commission-based brokers have wider rate access, empowering them to beat bank offers. But watch out for fees padding their payout.
Evaluate loan officers as individuals based on transparency and good faith partnership, not solely their pay structure. No model is foolproof against predatory practices.
The Bottom Line
Understanding loan officer commission empowers you to shop mortgages with eyes wide open. While commissions give borrowers access to a broad market, make sure incentives align.
The most important factor is choosing a loan officer who communicates openly, provides great service, and saves you money. Prioritize transparency and accountability above all else in your search.
Shopping mortgages is complex. But with the right loan officer as your guide – commission or not – you can navigate the path to your dream home.
How Much Do Mortgage Loan Officers Make?
According to ZipRecruiter, Mortgage Loan Officer salaries below $50,000 (25th percentile) and above $200,000 (90th percentile) are outliers. The majority of MLOs (24%) make between $81,500 and $102,499.
The typical MLO is paid 1% of the loan amount in commission. On a $500,000 loan, a commission of $5,000 is paid to the brokerage, and the MLO will receive the percentage they have negotiated. If the portion of the commission for the MLO is 80%, they will receive $4,000 of the $5,000 brokerage percentage fee. Depending on the MLO’s involvement in the transaction, the percentage fee can range anywhere from 20-80%.
While some Mortgage Loan Officers are paid commission by percentages, others are paid by basis points. The Mortgage Reports says, “Each basis point is 1/100th of one percent, so 25 basis points, or bps, equals 1/4 of one percent. That’s $250 for a $100,000 mortgage.”
If you’re entering the industry and don’t know where to start regarding a compensation plan, check out this sample.
Your earning potential as a Mortgage Loan Officer can increase as you gain experience and develop your career with additional education. Other factors that will impact your earnings as an MLO include the state in which you do business and the fluctuation of the mortgage market. Around 16% of full-time MLOs make above the national average salary, earning up to $181,000 per year.
With unlimited earning potential and the chance to gain experience and education as you go, becoming a Mortgage Loan Officer can unlock a lucrative and stable career path.
How Do Mortgage Loan Officers Make Money?
The way that Mortgage Loan Officers are paid will vary from office to office, depending on commission structure, fee splits, salary, bonuses, and benefits. If an MLO works for a financial institution, like a bank, they are more likely to be paid a salary and receive benefits. MLOs working for a state-licensed mortgage brokerage will most likely earn commission.
How Much Do Loan Officers REALLY Make?!
FAQ
Where does a loan officers commission come from?
Do bankers get commission on loans?
How does MLO make money?
Do loan officers make more money on higher interest rates?
How do mortgage loan officers get paid?
Mortgage loan officers may be paid entirely on commission, a combination of salary and commission, or a salary. Bonuses or incentives may also be paid out. Their pay is usually incentivized by how good they are at closing home mortgage loans. Mortgage loan officers have high earning potential. As noted previously, compensation can exceed $200,000.
How much Commission can a loan officer make?
As a sales-based role, the general rule is that you can make more commissions in situations in which you’re generating your own leads. The difference can range from 0.2% to 2% of the total loan amount, again depending on the employer. Additionally, loan officers can earn incentives for reaching certain thresholds or selling certain products.
Does a Bank pay a loan officer a commission?
Although the bank is paying the loan officer a commission, the money is really coming from you, the borrower, in the form of a higher annual percentage rate (APR) to make up for lost fees. In fact, the lending institution could be making a lot more money this way, as it stands to get a higher interest rate for what could be 30 years or more.
How much does a loan officer make?
They will pay the loan officer a base salary and a small bonus amount based on the loan amount, not the total fees on a file. Or, simply put — if a loan officer helps you with your mortgage and your loan amount is $200,000 and the loan officer is paid ’30 bps’, the loan officer would make 30 basis points on $200,000 or $600.