The New MLO Show Episode 6

In episode 6, we discuss how loan officer compensation works. The New MLO Show provides insights and advice to new and aspiring Mortgage Loan Originators. Whether you are already licensed and looking for tips for more business, or you are looking to get licensed and become a loan officer, this podcast will help you reach your goals in the mortgage business!

For information on joining the loan officer team with the best rates, programs, and leads, visit https://NewMLO.com

If you are not licensed yet and would like help getting your mortgage license, visit https://NewMLO.com

Transcript

SPEAKER_00 0:01

Welcome to the new MLO show. This is episode six. I am your host, Kyle Hershey, and today we're going to talk a little bit about how loan officers get paid and how commissions work. So in the mortgage industry, loan officers are paid based upon the loan amount. So a lot of people are familiar with the real estate industry and how realtors typically would get 3% of the home purchase price, right? The buying agent would typically get 3%, and the selling agent would typically get 3% of the purchase price. Now that's changing a lot, actually, uh, but that's still, you know, typically the standard. A loan officer, however, gets paid based on the loan amount. So even though they may be purchasing the house for$500,000, the loan is only$400,000 because they're putting 20% down. And so the loan officer is getting paid based on the loan amount. Now, while real estate brokerages typically collect 3% for their side of the transaction, mortgage brokerages and lenders typically collect 2.75% of the loan amount for the transaction. Now, this also varies because lenders can charge more, but in the brokered world, the max that you can charge is 2.75% margin, right? So that is kind of putting it in perspective for people who are brand new to the industry, understanding and being able to compare it to realtors. I find that it's easiest to compare it to realtors to understand. Yeah, realtors, you know, the real estate brokerage usually gets 3% of the purchase price. Uh, the mortgage brokerage typically gets 2.75% of the loan amount. Now, uh, there's a bunch of exceptions to that, and it totally depends on where you work. Now, beyond that, the mortgage company obviously has to make some of that 2.75%, just like the real estate company has to make some of that 3%. And so the split that you have with your mortgage broker or your real estate broker is going to change depending on what company that you're at. Now, at our company on our team, we have some of the highest splits uh in the business, which is 2.2% of the loan amount, right? So if the company collects 2.75% of the loan amount, then you would make 2.2% of the loan amount as your compensation. And there's ways to even make more. So we have some of the best compensation in the industry, but that's how the compensation works. Now, what we call this in the mortgage industry is being paid according to basis points, right? A basis point is equal to um, you know, 0.01% of you know a loan, right? So 100 basis points um is 1%. So 275 basis points is 2.75%. So when we're talking to loan officers about compensation, we're saying, yeah, we charge the client two 275 basis points and you get paid 220 basis points. That's the situation at our company, right? The client is uh paying a 275 basis point margin, and the loan officer is making 220 basis points or 2.2% of the loan amount. So a couple of different ways to think about it there, but just understanding that as opposed to um the actual purchase price of the transaction, the loan officers are always like the realtors do, the loan officers are always getting paid based on the loan amount. It doesn't matter how much the house sold for, doesn't matter how much the house is worth when we're refinancing it. All that matters is how much was the actual loan amount that the bank lended out. We're going to get paid based on that. Now, again, typically, you know, 275 basis points is the typical margin, but it can go way higher if you're a lender, you're legally allowed to charge more. Um, it could go way lower if you're trying to win deals or at you or you're at some kind of low margin shop where it's just trying to bang out a bunch of deals at the lowest margin possible to try to beat everybody out on their rates. Um, so this can vary a lot. But again, at our company, it's really one of the highest in the industries. We're charging the client 275 basis points margin, and we're making 220 basis points as the loan officer. So, for example, on a million-dollar loan, which is pretty common nowadays in a major city, a million-dollar loan, your commission is$22,000 if you're on our team. So, you know, it's a little bit different than how the realtor uh commission works, but it's definitely similar. So that's how I like to compare it for people that are new to the industry. But as far as the lingo goes, you know, basis points, 100 basis points is equal to 1%. So when we're throwing around, you know, you get paid 220 basis points, you know, we're talking about 2.2% of the loan amount. So again, you know, million-dollar loan, 22,000, maybe it's a half million dollar loan, you know,$11,000 commission. Um, so this is a great industry to be able to work in and make commission. Now, another great part about being a loan officer is that it's remote and that it's uh somewhat on your own schedule. Now, the reason why I say um somewhat is because obviously you're a commission uh only uh and operating based on the sales, then you you know, if there's something going on with the sale, you kind of have to drop everything and make it happen, right? So uh you're on your own schedule, uh at least on our team, as far as you don't have to go into an office every day or have set hours, but obviously the uh deals themselves kind of determine your schedule. So you have to be ready and available. Um, and the great thing now is you know, you don't have to go to closings. Uh back in the past, it used to be a big thing of like you would probably only do deals in your state or your area, and you want to go to the closings and meet the people in person and all that. That's not necessary anymore, right? That's why I love being a loan officer more than being a realtor, is that you can do you get your state license. So you can do loans in any part of your state. Now, when you're a realtor, you get your state license and you can do real estate in any part of your state, but you really can only do real estate in the markets where you have where you are, where you're a part of that MLS and where you can physically go to these houses to show people. Well, as a loan officer, we can get our license. You get it in one state, you can do a loan at any place in the entire state, and everything is remote. You don't have to go anywhere and show houses, you don't have to, you know, go to the closing physically, all these different things that realtors typically have to do. You don't have to do it. You don't have to go to walkthroughs, inspections, you know, any of that stuff, appraisals. So it is a lot easier as a loan officer in those terms, but we have a much wider market because we get one state license. Now we can work that whole state without having to worry about if we're a member of an MLS there or if we have access or if we could make it there to show people the homes. And then also we can just easily get a license in another state and do the same thing in that state. So some of our loan officers are licensed in almost all 50 states, and so they have literally everyone in the country available to them that they could help out, as opposed to just the people living in their immediate area, which is what a realtor has to deal with. So, from someone who owns a national lender and owns a real estate brokerage, I'm telling you, being a loan officer is a lot better than being a realtor. No offense to my realtors out there. And some people are amazing at it, and that's what they do best, and they like that the most. But in my opinion, being a loan officer is a lot easier, I would say. And it's not, don't think it's easy, but being a realtor is extremely difficult. Uh, and so I think being a loan officer is a little easier than being a realtor, especially in terms of the market that you're available to work. You're not stuck into this one market. Uh, you don't have these big uh MLS fees that you have to pay a thousand dollars a year, is what it is in Miami. It's outrageous. Um, you know, so there's a lot of benefits, I think, of being a loan officer over being a realtor. But again, I've owned both companies. I've also, you know, have my real estate license and mortgage license. And so I see both ends of it. And in my opinion, I feel like it's much more lucrative and a little bit lower barrier to entry to be a loan officer. And it's also a lot easier to work like online leads and stuff like that, because again, it's national, right? You don't have to only as a realtor, you could work online leads, but only people in that certain area, right? And so it's really more about being out there in person and building relationships and stuff. But as a loan officer, you know, you don't necessarily have to go do that in person, right? You there's a huge opportunity as a loan officer. You could never go to any events in person and still be an extremely successful loan officer without going to any open houses, without going to events, without going to closings with your clients, without going anywhere. Just from your house, you could be quarterbacking dozens of loans per month. And some people do that. Um, but you know, obviously it's usually better to build relationships, especially with realtors. But that's how the commission works as far as loan officers go. We're paid based on the loan amount. Um, you know, 100 basis points is equal to 1%, or typically have a 275 basis point margin, uh, which is you know what the company is making. And then uh on our team, we pay out the loan officers 220 basis points or 2.2% of the loan amount, which is some of the highest in the industry. Meaning you could make that whole 275 basis points. So um, you know, a lot of a lot of great ways to earn even more, you know, at our company. And as far as volume goes, it really varies between uh loan officers and between companies, right? Some companies are high volume shops where they're just uh churning through people and they're giving them really low interest rates, but not that great of service. Um, and so if they're making a small amount, right? They're not making 275 basis points on each loan. They might be making 150 basis points on each loan. So they're able to give the client a lower rate, um, but they're making a lot less. They're paying their loan officers a lot less and their staff. And um they're they're obviously not, you know, giving the same service as people like on our team do, where they're their, you know, personal loan officer walking them through the whole transaction. They're just getting called by random people at this company that are hourly employees that are just pushing paperwork through, right? So it can vary from that all the way to people who are, you know, like people on our team and uh people at our company that are top producers, which are people who are, you know, charging a good margin, a regular margin, because they're providing the best service, right? And so it's gonna depend and vary on uh the the the different companies and um the vary from eat deal to deal, right? Sometimes you have to charge less margin. Um, but industry standard 275 basis points margin. And uh here on our team, we pay you out 220 basis points on that, which is 2.2% of the loan amount. So for everybody who's always asking me uh the questions about how loan officers get paid, that is you know our pay structure. And here's the great part about being on our team is that payroll is every day. So you get paid the next day, which at some companies it could take up to six weeks for you to get your commission. And here we pay you the next day. Payroll is ran every day. So that's absolutely amazing. I've never seen anything like that uh where a company is actually running payroll every single day. So as soon as you closed your loan and the check comes in and the paperwork settled, boom, get paid the next day. Other companies, two weeks, four weeks, even up to six weeks. Uh, when I first got into the industry, I was at a bank where it was even more than six weeks, uh, which is just outrageous. But here on our team, when you go to new mllo.com and sign up for our team, we get paid the next day. And sometimes if it's in the morning, if if all your paperwork is in in the morning, you can give it even get paid that same day because payrolls ran every day. Um, so that's absolutely amazing. So that's how loan officers get paid out there in the the world. Some might charge different margins, pay their loan officers different margins. Here on our team, we're typically going to charge 275 basis points margin, which is gonna leave the loan officer with 220 basis points worth of commission. And the most beautiful part about it, payroll is ran every single day. All right. Well, I'm gonna go ahead and open it up to questions here now. Remember, you can always send us questions, send them to at Kyle Hershey or at the new MLO show. Um, you can go to new mllo.com to sign up as a loan officer. If you're already licensed and you just want to join a new team that provides you with leads and the best rates and pricing and and hundreds of different outlets, you can go to new mllo.com and sign up to join our team. Or if you're not a licensed loan officer yet and you're looking to get licensed, you can actually do that at new mlo.com. We can walk you through the licensing process and bring you on board so you can start closing loans. So whether you're licensed or not, go to new mlo.com, n-ewml.com, and uh we can bring you on board and start getting you closing some loans so you can start making that 2.2% of the loan amount commission on some deals. All right. So, first question here. See, Alex is asking, how much does the loan officer typically make per loan? Um, so that's really gonna depend on the area you're doing loans at, right? So if you're uh in a state like Florida and you're getting a lot of deals in South Florida, then your loan amount's probably gonna be pretty large, right? That's why I say like a typical market, any large, any state that you're in that has a large city in it and you're doing deals in there, a million dollar loan is not that uncommon anymore at all. I mean, a decent house in a major city is a million dollars for a two, three bedroom, right? Um, so a million dollar loan and you'd be making, you know, at on our team, you'd make 22,000 um commission on that. And, you know, then it depends on how many loans you do per month. But again, it's gonna depend on the area. If you're only doing loans in like the middle of nowhere, Ohio, and every house is only$100,000, that's gonna be a big difference, right? You'd have to do 10 loans to make the same amount that somebody would on a million-dollar loan. You know, that's that's one of the things that uh is kind of an industry saying is it takes the same amount of work to close a$100,000 loan than it does a million-dollar loan, which is absolutely true, right? We get paid according to the loan amount. Um, and so that's not to say to throw away hundred thousand dollar loans or don't help those clients out or pay attention to them. The point is just that, you know, larger loans are obviously better and you can waste a lot of time trying. So the the real thing is don't target low loan amounts, right? If you're sitting there targeting all day only areas that have low loan amounts or targeting a certain type of client that keeps coming to you with only low loan amounts, you got to be careful about that because it'll take you the same amount of work to do that as it would have taken you to close one that pays you five to 10 times the same amount. Um, so how much loan officers make really depends. And just like realtors, loan officers are commission only, typically, and it's all self-motivated. And at the end of the day, it's a sales job, just like being a realtor. And so, just like realtors, the top, you know, 10% of loan officers make 90% of the money, and the bottom 90% only do a deal when one of their family members needs a house sometimes or does no deal at all, right? People get their license and then they don't continue to work. Uh, and and a lot of the times they'll hit a wall and realize, hey, this is actually difficult. I thought this was gonna be easy. I just get my license, and then people would start coming to me when they need a refinance or whatever. Well, it's not that simple, right? We get paid so much money because it's a difficult job. And so how much you make is really going to depend on how much you do, like any commission only job, like any sales job, you know, it's just based on are you taking it seriously? Are you doing it full time? Now you can ask any full-time loan officer that's actually doing uh the job of a loan officer working at a legitimate company, doing it legitimately full time, they're going to be making six figures plus. I mean, there's no way that you could be doing this full time for any extended period of time and not be making six figures. If you're not, then you're in the wrong business, right? Or you're doing something wrong, or you're not actually working full time. So the income is going to very much depend on the loan officer and what they are doing. And just like any other sales job, any other commission only job, it's just going to depend on how much work you're willing to put into it. All right, question here from Sarah. Is mortgage commission based on the loan amount or the interest rate? Yeah, so great question. We touched on this a little bit ago. So the the uh commission is based on the loan amount, right? Now, the interest rate is going to vary depending on how much margin is being charged, right? So um we're getting paid a percentage of the loan amount. Now, that percentage is going to change depending on how much margin we are charging the client, right? So if we're charging the client 2.75% margin, that's going to raise the interest rate from the base interest rate. It's going to rage it, raise it 2.75% in uh, you know, uh margin, not actual uh percentages, but in margin. And that is how we're going to make the 275, right? The 2.75% of the loan amount is commissioned. So yes, they both come into play, right? We're always based on the loan amount. So the amount we're getting paid on is also always based on the loan amount. That's always the number it's based on. But then yes, you could charge less and make less, right? So if you charge your client less than 275 basis points margin, then they could get a little bit better interest rate and you would make a little bit less money. Um, if you charge your client more than 275 uh basis points margin, then you could make a little bit more money, right? But the industry standard is 275. The reason why the industry standard is 275 basis points is because um brokers, which make up the majority of loan officers, mortgage brokers, that's the most they can charge is 275, right? That's the that's where it's capped at. So again, as realtors get well, realtors get three percent of the purchase price, loan officers 2.75 percent of the loan amount, and that is the top of the um amount that they're able to charge legally. So that's why it's become the industry standard, right? You can't charge over that now. If you want to charge under that to try to win a deal, you know, that's something that's up to you and your company, and also like your coaches and and trainers, you know, people teaching you because you don't want to devalue yourself and you don't want to run around and do loans for super skinny margin where you're making barely nothing because you're lowering your price to try to win deals constantly, right? So, you know, it's based on both technically, but the actual amount that we're talking about is always the loan amount as opposed to the purchase amount. Okay, uh, let's see here. Question James is asking, can new loan officers make good money in their first year? Yeah, absolutely. I mean, I had a loan officer that was on my team a while back that um came on board, no experience as a loan officer, and he had no leads of his own. And we were giving him leads at the time. And um he came on board, he did five million in his first three months. So in his first 90 days, he did five million in production, which is insane. He made like sixty thousand dollars. Uh, I forget the exact amount, but he made more money. And he had told us, he said, I made more money in this first three months than I made last year at my old job, right? He made whatever 50 something thousand at his old job. In his first three months as a loan officer, he had made 60 something thousand and he was off to the races. And one of that was from a repeat client, a lead that we had given him that was a repeat client, and the guy kept buying stuff from him after that as well, not buying stuff, but kept doing loans to him after that as well. So, yes, absolutely, you can be brand new. The question is, are you gonna do the work? Right, that guy came in, he started taking leads, he called him, he followed up. And you know, the greatest part of the story, you couldn't even make this up. I couldn't, I couldn't make up a better example. Uh, the best part about that story is that the guy who gave him most of the deals that made up that five million dollars, that repeat client, he called that guy seven times before he answered. And on the seventh time, it was a lead that we gave him, and he kept following up with him. The guy didn't answer, didn't answer. On the seventh time, the guy answered me and said, Hey, you know what? Another lender just fell through today on one of my properties, so I'll give you a shot. And boom, turned into multi-million dollars in loans. That helped him hit five million in the first three months. That put, you know, 60,000, 70,000 or whatever in his pocket in three months, and he was off to the races on becoming a full-time loan officer. So, yes, it's possible. Now, is it easy? No, of course not. Takes time to build your pipeline, takes time to get going, but it's just a matter of how much work are you willing to put in. And he really not only put in the work, but he put in the hard work, right? Following up, how many people are gonna call somebody seven times? There's 99% of loan officers would not make the third call, fourth call, fifth call, sixth call, or seventh call, right? And if he had stopped at six calls, he'd have 60 grand less in his pocket or 50 grand less or whatever would have worked out to be the amount of business he did with that gentleman if he had stopped at six calls. So that's it, that's just an amazing story. It's almost too good to be true. I couldn't make that up as a as a like a training story, right? Of of uh what you should be doing in your first three months. And and what he was doing was he was calling. He was calling leads and he was following up with people. And again, seventh time he called the gentleman. And just it's a great point to just plant that seed to think about what if he had stopped at six? What if he had stopped at six follow-up calls and he hadn't called that guy that day? I mean, we're talking about a difference of you know$50,000 commission in this guy's pocket because he decided to make that call, uh, that seventh call, which is, you know, just an amazing story. Okay, uh question here from Alyssa: Do loan officers receive a salary or are they strictly commissioned? Well, they could. I mean, if you're working at like a very large lender, then they could pay you salary, and then of course they pay you basically no commission. And so you're doing loans where you would make$20,000 off if you were commission only, but you'll get like a$200 bonus, maybe or something because you're on a$30,000 salary or something. That would be at like a bank or a credit unit or a very large lender sometimes, right? But those positions are hard to get because it's a guaranteed salary. And again, it's really not worth it, right? If you're in the mortgage business, you're you're in it for commissions. You're in it to make a lot of money. It's not an easy business. So if you're in this business, you're going to have to make a lot of money and getting paid salary somewhere and some tiny little scraps of commission when you close a deal, that's not going to make you the kind of money that you probably want to make. If you want to be making multiple six figures, it's impossible to do that with a salary. But it's very possible to do that when you're an actual loan officer that's, you know, commission only like the rest of us. Okay, question here from Chris. How many loans per month does a typical loan officer close? It really varies, right? The ones that are up and running have a um, you know, have a big pipeline, have been doing business for with people for a long time, have a lot of realtor relationships to refer them deals, they're typically going to do maybe five or 10. And then you have people that just started in the business that are going to do zero. And you have people right in the middle that are trying to build up their business and make it work, and they're usually at trying to be like at about two, right? Like two loans a month is what most companies would consider like a full-time loan officer. Like if you're actually being a full-time loan officer, two loans a month, you should be closing uh bare minimum. Okay, we'll take uh a couple more questions here. So Ray is asking what separates the highest earning loan officers from everyone else? I would say what separates the highest earning loan officers from everyone else is um obviously just the work, the amount of work that they're putting in and really the relationships and the referrals. So the loan officers who are who are inevitably going to make the most money are the ones that are getting the most referrals, right? Because referrals are the easy business, not easy, but easier than leads and stuff like that. And so typically that means people who have been in business for a while and also are getting have a lot of realtor relationships, the realtor relationships referring you deals. If you have relationships with a if you have strong relationships with a few top realtors, you're gonna be a top loan officer because the top realtors are sending you so many, excuse me, the top realtors are sending you so many referrals that you become a top loan officer. So obviously, time and relationships and pipeline is what's going to separate the the top producing loan officers from the rest.

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All right.

SPEAKER_00 24:03

Last question here is it possible possible to make six figures as a loan officer? Yes, absolutely. I mean, you should be making six figures. If you're a loan officer, you should be making six figures. If you're not, then there's a problem, right? Now it's not gonna happen in the first six months. Um, but again, it, you know, the gentleman I just said made 50, 60,000, 70,000 in his first uh uh three months, in his first 90 days. Um, so it's possible to do it in your first six months. But yes, in your first year, by the end of the year, you should be putting up those numbers, you should be making 10,000 plus a month. Um, there's no reason why, especially when uh at a on a team like ours where you're making 2.2% of the loan amount in commission. I mean, again, just a million dollars in loans closed that month, and you're making$22,000. So that shouldn't be an issue at all to make uh six figures as a loan officer. The real question is, are you going to actually do it full time so that you can get there? And then are you going to really take it to the next level once you're there and really commit to it a thousand percent, be all the way in and uh go above and beyond to build more real-to-relationships and all this stuff. And that's how you're gonna snowball into multi-six-figure uh a year income or seven-figure a year income. All right. Well, with that being said, let's go ahead and wrap it up. So remember new mllo.com. If you want to join our team, if you're already licensed, you can join our team. We give you leads, we got the best rates out there, the best pricing, uh, the most programs, over 300 different lenders we can uh broker loans to. Uh, and we're also a correspondent lender as well. And um, you know, the top of the industry compensation. So if you're already licensed, you can go to new mllo.com to join our team if you want to uh make a change and and and start uh boosting your career there. And if you're not licensed yet, go to newmlow.com. You can actually get your license there, and we will walk you through all of the next steps and we will bring you on board. So if you're already licensed, you can sign up and join. If you're not licensed yet, you can go to new mllo.com and we'll help you get your license and bring you on board. So thank you everybody for tuning in. We'll see you on the next episode of the new MLO show.