Commissions and compliance are the most challenging parts of running a mortgage brokerage today.
Are you curious about how much the average loan officer makes in commission? Are you a mortgage broker looking to maximize your revenue?
This article will provide an in-depth look at loan officer compensation so that you can make informed decisions about your business.
Introduction to Loan Officer Compensation
As a mortgage broker, you know that loan officers are the key to your success.
Your loan officers are the ones who interact with clients, evaluate their financial situation, and submit loans for approval. They are the foundation of every brokerage.
As such, it's essential to understand how much the average loan officer makes in order to determine how best to structure your commission plan.
In this article, we'll cover the basics of loan officer compensation, including:
- How much does a loan officer make per loan?
- Factors that impact loan officer compensation
- Loan officer commission structures
- The loan originator compensation rule
- How to calculate loan officer compensation
- Examples of Loan Officer Compensation Plans
By the end of this article, you'll have a better understanding of how much loan officers make and how other brokerages structure commission plans.
How Much Does a Loan Officer Make Per Loan?
The short answer to this question is that it depends.
Loan officer compensation varies widely depending on the loan type, the loan terms, and the loan officer's commission structure. There are two common commission structures:
- A flat fee per loan
- A percentage (or basis points) of the loan amount.
Some brokerages work with loan officers on a contractor basis and charge a flat broker fee. The loan officer can price the loans they're originating (on average, around 2% of the loan amount), and the broker receives a flat fee in exchange for their support. They issue a 1099 to the loan officer at the end of the year.
Other brokers operate on a flat fee model where loan officers receive a set amount per loan.
Still, other brokerages use basis point percentages to calculate the amount a loan officer will receive in exchange for originating their loan.
Factors That Impact Loan Officer Compensation
Several factors can impact a loan officer's commission.
This figure can vary depending on the loan, the loan officer's commission structure, the loan officer's level of experience, the area in which the loan officer is originating, and more.
One of the most common factors that affect compensation is the type of loan. Some loan types, such as FHA or VA loans, may have higher commission rates for loan officers because of the additional paperwork and time required.
In addition, the terms of the loan or the loan amount can affect the overall commission. For example, a loan officer may receive a higher commission for larger loans.
Furthermore, the loan officer's commission structure may also play a role in determining the commission rate. Some loan officers may receive a higher commission if they can close more loans in a given period of time.
Commission-based brokerages often introduce a commission cap to limit the amount of money a loan officer can earn on an individual loan.
Loan Officer Commission Structures
Loan officers may receive different types of commissions.
For example, some brokerages operate on a flat-fee model. This means that the loan officer receives a predetermined amount for each loan they close.
Still, other brokerages use a Draw Against Commission model, allowing loan officers to receive a consistent payout against the promise of their future earnings. These draws are then paid back to the company as the loan officer begins to earn money.
In most cases, independent loan officers working at brokerages receive a percentage of the loan amount. For example, a $500,000 loan at a 1% commission rate will be paid out at $5,000. The commission rate scales higher for larger loans but can be limited with a commission cap or lowered by brokerage fees for software and administrative support.
The Loan Originator Compensation Rule
The Loan Originator Compensation Rule (LOCR) is a federal rule that governs how loan officers are compensated. The LOCR tied with Regulation Z from the Truth in Lending Act are rules that require more transparency and implement prohibitions related to mortgage originator compensation.
At their core level, these laws limit loan officers' compensation to be "reasonable and customary" in a manner that protects consumers against unfair practices. This means that loan officers must be compensated fairly and equitably and that their compensation must not be tied to the terms of the loan.
The LOCR also requires that loan officers disclose their compensation to borrowers.
This helps ensure borrowers know how much the loan officer will be paid and that the loan officer's commission does not influence their decision to take out a loan.
How to Calculate Loan Officer Compensation
Calculating a loan officer's compensation can be complicated. The most important factor is the loan officer's commission structure.
If the loan officer is paid a flat fee per loan, then the commission is simply the predetermined amount.
If the loan officer is paid a percentage of the loan amount, then the commission is calculated by multiplying the loan amount by the predetermined percentage. For example, a $500,000 loan at a 2% commission rate will be paid out at $10,000
In addition to the commission structure, other factors may affect the loan officer's compensation. For example, some loan officers may receive a bonus if they are able to close more loans in a given period of time.
Examples of Loan Officer Compensation Plans
Loan officer compensation plans vary widely, so it's important to understand the different options available. Here are some examples of loan officer compensation plans:
- Flat fee per loan: The loan officer receives a predetermined amount of money for each loan they close.
- Percentage of loan amount: The loan officer receives a percentage or basis points according to the loan amount, so the commission rate is higher for larger loans.
- Bonus for closing more loans: Some loan officers may receive a bonus if they are able to close more loans in a given period of time.
- Hybrid commission structure: Some loan officers may receive a combination of a flat fee per loan and a percentage of the loan amount.
Understanding how much loan officers make in commission is an important part of running a successful mortgage brokerage. Loan officer compensation can vary widely, depending on the type of loan, the terms of the loan, and the loan officer's commission structure.
The Loan Originator Compensation Rule (LOCR) is a federal rule that governs how loan officers are compensated. The rule requires that loan officers be compensated in a "reasonable and customary" manner and that their compensation must not be tied to the terms of the loan.
Understanding your average compensation rate and average loan size can greatly help you as you scale your mortgage brokerage. Our team works with many brokers and independent loan officers to understand and predict the ever-changing market and navigate uncharted territory.
Grow your brokerage with an accountant and financial coach at Amarlo today!