If you're shopping for a home loan, you might choose to go through a mortgage broker. The main service a broker offers is to find home loans and help you compare them. And a broker will typically help you with submitting your loan application and let you know how to prepare for closing.
Before you agree to work with a broker, you'll want to find out if you owe them any money for those services. The answer depends on how the broker is paid.
There are a couple ways mortgage brokers earn money, and their pay generally works out to a percentage of each loan they close.
Guiding consumers through the borrowing process is a big responsibility, so the law requires brokers to get licensed before they can work in this field. For those who are able to jump through the necessary hoops and grow a client base, the commissions can add up to a lucrative annual income.
Brokers can be paid a salary plus commissions for the loans they close, or they may be paid only in commissions.
Brokers typically earn 1% to 2% of the amount of each loan they close. So, for example, a broker's fee might be in the range of $2,000 to $4,000 on a $200,000 loan or between $5,000 and $10,000 on a $500,000 loan.
Some brokers charge their fee to the borrower. In that case, you either pay the fee at closing, or you increase the loan amount to cover the fee.
Alternatively, brokers can be paid by the lender. When a lender is paying the fee, they make sure the interest they're charging the borrower is high enough to offset that expense.
By law, a mortgage broker can't be paid by both the borrower and the lender. And their fee can't be tied to the loan's interest rate. That prevents brokers from trying to steer borrowers to expensive loans to increase their own earnings.
Federal law also states that a mortgage can't have fees above 3% and be considered a qualified mortgage. (A qualified mortgage is a mortgage that meets a set of requirements protecting consumers, and it comes with some legal protections for lenders, too.) The law counts broker fees toward that limit, so it sets a cap on the fees brokers can charge if they want to offer loans in this category.
Whether a broker's services are worth the fee depends on how much comparison shopping you're going to do on your own.
The Consumer Financial Protection Bureau (CFPB) finds that almost half of homebuyers don't shop around before applying for a mortgage. If you're in that group, you'll probably leave a lot of money on the table. Often, different lenders will offer the same borrower different mortgage rates, and there could be a gap of 0.5% between the most expensive home loan you're offered and the least.
The savings from finding the cheaper option can be significant. The CFPB reports that taking out a $200,000 mortgage loan with a 4.0% interest rate instead of a 4.5% rate leads to savings of $3,500 in the first five years of the loan.
So, should you pay a broker to find the lowest rate for you? If the broker charges a 1% fee, that works out to $2,000 on a $200,000 loan, and you come out ahead. If the broker charges 2%, you're paying $4,000, and the cost outweighs your savings.
If you aren't going to research a bunch of lenders yourself, it may make sense to pay a broker's fee as long as they aren't taking an especially large cut.
Learn the difference between mortgage brokers and lenders.
As with any job where people earn commissions, pay for mortgage brokers can vary widely. Brokers who help clients close on large loans will typically earn more than those who oversee smaller transactions. And brokers who drum up a higher volume of business might earn more than others.
Location can also make a big difference. Brokers working in upscale, high-cost areas can likely command higher earnings.
Then there's years of experience. A broker who has built up a strong network over time and who gets lots of word-of-mouth referrals can probably earn more than someone who's just starting out.
To get an idea of the possible range, let's check some pay reporting websites.
Glassdoor estimates that the median total pay for a mortgage broker in the United States is $153,324 per year. That figure combines $108,016 base pay and $45,308 in additional pay, which could come from a bonus, commissions, or profit sharing.
The site also reports that the "most likely range" for a mortgage broker's total pay is $89,000 to $307,000 per year.
Payscale shows total pay for mortgage brokers typically ranging from $30,000 to $137,000 per year.
The site also breaks down earnings by type of pay. It finds that mortgage brokers can earn between $36,000 and $124,000 in base salary, $2,000 to $36,000 in bonuses, and up to $1,000 from profit sharing. It also shows commissions amounting to $12,000 to $178,000 a year.
Salary.com reports that a mortgage broker in the United States makes $87,127 on average. It finds a range of pay from $78,780 to $104,031 a year.
If you're considering a career as a mortgage broker, you might want to dig deeper than these broad estimates. You could search these sites for broker salaries in your city to narrow down the numbers. Or, you could try to get an informational interview with a mortgage broker in your area and ask them what pay range they think is realistic.
You'll need to get a license from your state to be able to legally work as a mortgage broker. Find your state on this map from the Nationwide Mortgage Licensing System & Registry (NMLS) to learn about the process where you live.
You'll need to provide your fingerprints and submit to a background check and a credit check, and you'll typically owe some fees.
You'll also need to get a surety bond or make a payment to a fund — whichever is required by your state. That protects consumers and ensures that if the state imposes a fine on you, it will be paid.
And you'll need to complete coursework and pass an exam.
You're required to take a 20-hour course approved by the NMLS that covers the essential knowledge mortgage brokers need to do their jobs. That involves studying the relevant laws and regulations and learning about ethics, how to protect consumers, and how to prevent fraud. It also covers lending standards for nontraditional mortgages.
You'll need to get a passing grade of at least 75% correct answers on a written test administered by the NMLS. Just 55% of test takers achieve that score on their first try, but you can retake the test after a waiting period.
Once you're a mortgage broker, you'll need to renew your license each year. You'll have to complete 8 hours of continuing education coursework as part of that process. Or, you can get some continuing education credit if you teach an approved course yourself.
Understanding how mortgage brokers get paid can be helpful when you're shopping for a loan. You know that whether you'll owe a fee depends on the broker, and you can compare fees from different brokers before choosing to work with one. You're also aware that a broker gets paid when you close on a mortgage, so you don't want to depend on their advice alone — you should seek guidance from a housing counselor, attorney, or other expert who doesn't stand to gain from your decision.
And if you're thinking about working as a broker, knowing how brokers get paid and how much they can earn allows you to make an informed decision about whether to pursue this career.
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