Buying a home is likely the biggest purchase you’ll ever make And when it comes time to get a mortgage, you’ll be working closely with a mortgage loan officer But have you ever wondered how these professionals get paid for their work?
As a first-time homebuyer, I had no idea how loan officers were compensated. And I’ll admit, I was a bit skeptical at first. Were they recommending certain mortgage products or lenders simply because it benefited them financially?
To find answers, I did some research into the typical pay structure for mortgage loan officers. Keep reading to learn how these professionals earn their living.
Salary vs Commission
There are two primary ways mortgage loan officers get paid:
- Salary
- Commission
Some loan officers receive a set annual salary from their employer. This provides a steady, predictable income no matter how many loans they close.
Other loan officers are paid mainly through commissions earned on each loan they originate. The more loans and bigger loan amounts, the more they get paid.
Many mortgage professionals earn a combination of both salary and commissions.
For example, a loan officer might receive a modest base salary of $60,000 per year, plus commissions on top of that. This pay structure gives them some income stability with the potential to earn much more through commissions.
Calculating Commissions
For commission-based loan officers, their earnings vary on each loan based on:
- The loan amount
- The commission rate
The commission rate is usually around 0.5% – 1% of the mortgage loan amount.
On a $300,000 mortgage, a 1% commission would equal $3,000.
So the larger the mortgage, the bigger commission the loan officer receives.
The exact commission percentage depends on:
- The lender they work for
- The loan type and terms
- Other factors
Some lenders pay higher commissions for specific types of loans, like VA, FHA, or jumbo mortgages. Or for loans with higher interest rates.
Back-End Compensation
There’s also something called back-end compensation that loan officers may receive.
As we know, lenders make money from the interest and fees charged on mortgages. Some of those profits may get paid back to the loan officer who originated the loan.
For example, if a loan officer originates a mortgage with a higher-than-average interest rate, the lender earns more income from that loan. The lender may then share a portion of that revenue with the loan officer.
This back-end compensation is less transparent since it doesn’t show up on mortgage documents at closing.
Bonuses and Incentives
Besides salary and commissions, loan officers can also earn bonuses and incentives from their employer.
These are usually tied to performance goals like:
- Total loan volume
- Number of loans closed
- Customer satisfaction scores
By hitting certain metrics, a loan officer may unlock a quarterly or annual performance bonus.
Some lenders also offer incentives like vacation packages or gift cards to top originators.
The Takeaway
While compensation models can be complex, the key point is that most mortgage loan officers earn commissions based on your loan amount.
It’s important to understand this pay structure when getting a mortgage. But you shouldn’t assume your loan officer is acting unethically if they stand to earn a commission.
A good loan officer will still shop around for the best loan for your situation, not just the one that pays them the most. Be upfront about your concerns and ask questions to determine if your loan officer provides unbiased mortgage advice.
Getting a mortgage is a big decision. So make sure you find a trustworthy loan officer who helps you every step of the way.
Payment Structure for MLOs
Mortgage Loan Officers make their money through loan origination fees, closing costs, and servicing and selling loans. Most often, a Mortgage Loan Officer’s salary is based on commission, with compensation varying from office to office and state to state. This fee is built into the mortgage interest rate as a percentage of the loan amount. With a higher interest rate, MLOs can expect higher compensation and vice versa. Their pay also depends on the number of loans they originate and the percentage of commission they’ve negotiated.
Some Mortgage Loan Officers are paid on commission only, which is common for smaller, state-licensed Mortgage Brokers. If an MLO is hired by a bank or larger financial institution, they are often given a base salary as well as commission and benefits. Some brokerages have a limit on the dollar amount an MLO can make from a single loan, and this figure can be negotiated alongside the commission fee.
Mortgage Loan Officers are either paid “on the front” or “on the back” of the loan. When an MLO is paid “on the front”, the borrower is charged certain fees, such as settlement costs, and that money is given to the MLO. These fees are paid by the borrower either out of pocket or are incorporated into the loan. This payment structure is also called borrower-paid compensation. If MLOs are making money “on the back”, otherwise known as lender-paid compensation, then their commission comes from the bank that is selling the loan to the borrower. This charge is not seen by the borrower. When an MLO is paid “on the back”, they may market themselves and their loans as having “no out-of-pocket fees” or “no-fees”. The Mortgage Loan Officer is still making money, but it is charged on the back-end of the transaction. It’s important to note that an MLO is either paid by the lender or the borrower, but never both.
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%.
Whether you’re a commission-based or salaried MLO, you’ll find that more experience and education will land you a higher income. So, what is the earning potential of a Mortgage Loan Officer?
Mortgage Loan Officer Earning Potential
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. A whopping 36% 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 Loan Officers Make Money? Comp plans, BPS, rate sheets, and salaries?
FAQ
How do you make money as a mortgage loan officer?
Why do mortgage loan officers make so much money?
How do mortgage lenders make their money?
Is being an MLO worth it?
Does a mortgage loan officer make money?
The Mortgage Loan Officer is still making money, but it is charged on the back-end of the transaction. It’s important to note that an MLO is either paid by the lender or the borrower, but never both. The typical MLO is paid 1% of the loan amount in commission.
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.
Is a mortgage loan officer paid on the back?
When an MLO is paid “on the back”, they may market themselves and their loans as having “no out-of-pocket fees” or “no-fees”. The Mortgage Loan Officer is still making money, but it is charged on the back-end of the transaction. It’s important to note that an MLO is either paid by the lender or the borrower, but never both.
How do banks pay loan officers?
Many of the larger, nationally known banks pay their loan officers differently than the smaller mortgage banks/brokers. 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.