Mortgage brokers are licensed professionals who connect borrowers with lenders but do not issue mortgages themselves. For each deal that they arrange, they typically receive a payment that equals 1% to 2% of the loan amount from either the borrower or the lender. This article looks at the latest available data on how much mortgage brokers can earn.
Getting a home loan can be an overwhelming process with a lot to learn and understand. One of the key decisions is whether to work directly with a lender or use a broker. Home loan brokers can provide guidance and potentially access to more loan options, but they also charge a commission for their services. So how much commission do home loan brokers typically make?
What is a Home Loan Broker?
A home loan broker is a licensed professional who acts as an intermediary between borrowers and lenders. Their role is to gather documents, assess the borrower’s financial situation, compare available loans, and facilitate the process.
Using a broker is optional – many buyers work directly with lenders. The advantage of a broker is gaining the expertise to navigate the loan process and expanded access to lenders and loan programs. This can potentially save buyers time and money, despite paying a broker’s commission.
How Do Home Loan Brokers Get Paid?
Brokers are generally paid by commissions from successfully completed loans. The typical commission is 1-2% of the loan amount. For example, on a $300,000 loan a 2% commission would be $6,000.
Some key points on broker commissions
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Commission rates can vary based on factors like market conditions and broker experience More experienced brokers may charge higher commissions
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The borrower or the lender can pay the commission. If paid by the borrower, it’s normally at closing. If paid by the lender, it may get rolled into the loan costs.
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Commissions must be disclosed upfront. Brokers cannot charge hidden fees.
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Under regulations like the Dodd-Frank Act, brokers cannot get paid additional commissions based on steering borrowers to higher interest rates or certain lenders.
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Brokers only get paid if a loan closes. They do not get commission just for originating a loan application.
How Much Do Home Loan Brokers Typically Earn?
As commission-based positions, broker incomes depend heavily on transaction volume. In general, the total compensation for an experienced broker ranges from $60,000-$100,000. However, it can exceed $100,000, especially in high cost-of-living real estate markets.
According to salary data, the average annual broker salary in 2021 was:
- $72,949 in Alabama
- $81,978 in Hawaii
- $88,032 in California
- $91,168 in New York
Beyond location, factors impacting earning potential include:
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Experience level – Brokers with more years in the business and mortgages closed have higher earning ability. New brokers often start around $60,000 while 10+ year veterans can earn over $100,000.
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Efficiency – Brokers who can quickly process loan applications and close more deals make more. Improving processes and time management helps increase volume.
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Loan types – Complex loan programs requiring more work, like jumbo loans, tend to pay higher commissions. Simpler loans like conventional 30-year fixed loans pay less per loan.
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Marketing – Brokers who generate more leads through networking, digital marketing, referrals can convert more prospects into clients and commissions.
Pros and Cons of Using a Home Loan Broker
Below are some key advantages and disadvantages borrowers should weigh when deciding to use a broker:
Pros
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Access to more lenders and loan programs expands options to potentially find better rate/term combinations.
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Expert guidance from start to finish, especially helpful for first-time buyers unfamiliar with the process.
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Faster pre-approval and loan processing since brokers handle paperwork and lender communication.
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Potential cost savings over the life of the loan by accessing better rate/fee combinations.
Cons
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Paying a commission increases upfront costs, typically $2,000-$6,000 on a $300,000 loan.
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If not shopping thoroughly, some broker commissions may exceed interest rate savings achieved.
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Less control over which lenders are approached if borrowers have preferred lenders in mind.
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Potential conflicts of interest around steering loans to higher commission programs or lenders.
Tips for Using a Home Loan Broker
If you decide to use a broker, here are some tips to get the most value:
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Ask about commission rates and structure – Understand how they get paid so you can evaluate if it’s reasonable.
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Check licensing – Brokers must be licensed so verify they have an active license in good standing.
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Get multiple broker quotes – Like with lenders, compare commission rates and services across multiple brokers.
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Ask about their process – A detailed process with frequent client communication is a good sign.
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Request client referrals – Speaking with past clients can provide insight on their services.
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Compare total costs – While brokers do charge fees, they may still save money in the long run through better rates.
Alternatives to Home Loan Brokers
Some options to consider besides traditional brokers:
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Online lender marketplaces – Sites like LendingTree allow you to compare loan offers from multiple lenders at once.
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Mortgage banks – They offer a range of loan programs so can provide some one-stop-shop benefits without paying for a broker.
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Credit unions – For members, credit unions offer very competitive rates and top-notch customer service.
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Direct lender – Going straight to established lenders like Quicken Loans or Wells Fargo to compare their rates.
No matter which loan origination method you choose, being an informed buyer is key to getting the best rate and terms. Home loan brokers can provide helpful guidance on the journey to homeownership. Understanding how they work and what commissions they earn allows you to evaluate if their services are worth the cost.
How Are Mortgage Brokers Paid?
Mortgage brokers typically receive an amount equal to 1% to 2% of each loan that they arrange. They are paid by the borrower in some cases and by the lender in other cases. 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.
A mortgage broker might be a solo practitioner or work for a firm with multiple brokers. Brokers who are employees may be paid a salary and split their commissions with their parent firm.
When the borrower is responsible for paying the mortgage broker, that amount may either be added to the loan or paid at the closing.
What Is a Mortgage Broker?
Mortgage brokers are licensed mortgage loan originators who work with multiple lenders to find mortgages for their clients. They differ from mortgage loan officers who work for a single lender, such as a bank or credit union, and are limited to offering that lender’s mortgage products.
Prospective borrowers often choose to work with a mortgage broker rather than a loan officer in hopes of getting the best possible interest rate or if they have other issues that might affect their loan application, such as a less-than-perfect credit history.
Borrowers can use mortgage brokers both for their initial mortgages and for refinancing with a new loan.
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FAQ
Do mortgage brokers charge a fee?
What is the maximum commission for a loan broker?
How much do mortgage brokers make in CA?
Are mortgage brokers a good idea?
What are mortgage broker commissions?
Mortgage broker commissions are fees paid to brokers for their services in facilitating the mortgage application and approval process. In the USA, these commissions typically come in two forms: upfront fees and ongoing fees. 1. Upfront fees Origination fee: This is a common upfront fee charged by mortgage brokers.
How much Commission does a mortgage broker make?
This commission can be paid by either the borrower or the lender, and it is typically around 2% of the loan value. Larger loans result in higher commissions for brokers, creating a financial incentive for them to secure larger loan amounts for their clients.
How much do mortgage brokers charge?
Mortgage brokers are required to disclose their fees. Typically, they are paid 1% to 2% or more of the loan amount. By law, the maximum fee mortgage brokers can charge is 3% of the loan amount. Mortgage brokers can be paid by either lenders or borrowers, but they can’t be paid by both parties.
How does a mortgage broker work?
The mortgage broker matches the borrower with a lender and the lender approves the loan. When the loan closes, the mortgage broker earns a 1%—or $4,000—fee from the borrower. Alternatively, the borrower may choose a loan structure that pays a 2% lender commission to the broker instead of a borrower fee.