How Much Does a Loan Officer Make Per Transaction? A Closer Look at Commissions

Selling loans can be a lucrative career for mortgage professionals. But exactly how much does a loan officer make on each loan they close? In this comprehensive guide, we’ll break down the typical commission structures to demystify loan officer earnings.

The Basics of Loan Officer Commission

Most loan officers earn the bulk of their income through commissions on closed loans. This means their earning potential scales directly with their sales performance.

The commission rate loan officers receive is typically between 0.5% to 2.5% of the loan amount. So on a $300,000 mortgage they could earn $1500 to $7,500. The exact percentage varies based on

• The lender Large banks tend to offer lower commission rates closer to 0.5% while small lenders and brokers often pay upwards of 2%.

• The loan type: Government-backed loans like FHA and VA loans pay less than conventional mortgages. Jumbo loans above conforming limits also tend to pay higher commissions.

• Origination source: Loans from company-generated leads pay more than loans from external referral partners.

• Experience level: Top producers can negotiate higher commission splits, while new loan officers often start between 0.5% to 1%.

In addition to these factors, some lenders pay loan officers a lower rate upfront then issue a bonus after closing a certain loan volume. So a loan officer’s commission rate may fluctuate month-to-month.

Typical Commission Structures

While commission rates vary, there are a few common compensation models:

• Split commission: The loan officer splits the lender’s origination fee with their company. For example, a 1% fee could be split 50/50, earning the loan officer 0.5%.

• Tiered commission: The loan officer earns higher commissions as they close more loans. For instance, 1% up to $2 million in volume, then 1.5% above $2 million.

• Flat fee: The loan officer earns the same commission, such as 1%, on every loan no matter the size or type.

• Draw plus commission: The loan officer earns a modest base salary plus commissions. This guarantees income as they build their business.

• Bonus incentives: The lender pays bonuses for closing a certain number of loans or generating a specific dollar amount in fees.

Within these structures, there is room for negotiation, especially for proven loan officers. The typical commission rate is a starting point, not set in stone.

Commission Payments

Another key point is that commissions are not necessarily paid out in full at closing. There are a few common payment options:

• Paid at closing: The full commission is issued on the closing date. This is less common as it exposes the lender to risk.

• Paid in installments: The commission is split into two or more payments over time. For example, 50% at closing and 50% after 6 loan payments.

• Paid monthly: The loan officer receives their commissions each month for deals closed the prior month.

• Paid quarterly: Commissions are paid out every quarter rather than monthly.

Loan officers should understand their lender’s pay structure and timeline before getting started. Some withhold payments until 6-12 months after closing to account for early loan payoffs or defaults.

Income Potential for Top Loan Officers

While the average mortgage loan officer earns $76,000 a year, top producers can make $150,000 or more. Here’s how commission income stacks up based on productivity:

• Scenario 1: A loan officer closes 25 loans a month at an average of $250,000 with a 1% commission rate. They would earn $62,500 in monthly commissions, or $750,000 annually.

• Scenario 2: A more productive loan officer closes 40 loans a month at a 1.5% commission rate. On the same $250,000 average loan amount, they would earn $150,000 per month or $1.8 million annually.

• Scenario 3: A high-performing loan officer closes 60 loans a month at 2% commission. That would equate to $300,000 in monthly commissions or $3.6 million annually.

Of course, very few loan officers reach those elite levels of production. But it illustrates the potential earnings for those who excel.

Here are some tips for maximizing your commission income as a mortgage loan officer:

• Take on more leads to close more loans
• Build referral partnerships with realtors and other professionals
• Seek out higher-paying commission structures
• Negotiate higher splits as you prove yourself
• Specialize in types of loans that pay more
• Originate larger loan amounts if possible
• Improve conversion rates by building client relationships
• Learn to close loans faster to increase volume

Expenses that Cut Into Commissions

One downside of being commissioned is that loan officers typically cover many of their own business expenses. These include costs for:

• Licensing and continuing education
• Professional associations and memberships
• Lead generation platforms and marketing
• Office space, supplies, and equipment
• Travel and auto costs
• Health insurance if not provided
• Taxes on commission income

As independent contractors, loan officers must pay both the employer and employee portion of FICA taxes which equals about 15% of total commissions.

It’s important to budget for these expenses from your commissions. Track your numbers closely to know your true net income.

Cons of Commission-Only Pay

While commissions incentivize loan officers to perform, there are also drawbacks to this pay structure:

• Unpredictable income: When business is slow or deals fall through, loan officers may struggle financially.

• Feast or famine cycles: Income fluctuates based on interest rates and market conditions.

• Potential for burnout: The pressure to produce can lead to stress and job dissatisfaction.

• Emphasis on quantity over quality: Making money may supersede ethical practices.

• Requires self-funding: Loan officers must pay for licensing, marketing, insurance and other work expenses.

• Lack of benefits: Most commission-based positions come without retirement plans, health insurance, or paid time off.

If you dislike uncertainty and sales pressure, a commission-centric role may not be the best fit. But driven, entrepreneurial loan officers often thrive on the unlimited earning potential.

Should You Become a Loan Officer?

Despite the challenges, being a commission-based loan officer clearly has financial perks for those who excel. With mortgage rates increasing in 2022, loan officers have an opportunity to capitalize on homeowner demand to refinance.

Carefully consider both the pros and cons before pursuing this career path. Understand how your income potential scales with sales volumes in your specific role. Setup a detailed monthly budget to prepare for fluctuating commissions.

Most importantly, work for a reputable lender that pays fairly and treats their loan officers well. With the right company and self-discipline, you can earn an excellent living by the power of your own productivity. Use commissions as motivation to provide an exceptional experience for borrowers while growing your personal loan portfolio.