I get asked a lot about how I get paid. The answer is both straightforward and complex at the same time. I’ll give it my best shot here.

It is important to state that Loan Originators, the person you are working with on your mortgage, is considered a Sales Person. As with most sales positions a Loan Originator is paid, usually, on a commission basis. Sometimes that commission is a simple dollar amount per loan closed, sometimes that commission is a percentage of the loan amount. That percentage can vary wildly between mortgage companies and even Loan Originators within the same company or branch. It’s not uncommon for two Loan Originators working for the same company or same branch of a company in cubicles or offices next to each other to be compensated very differently.

Often branch managers and more experienced Loan Originators make substantially more than more junior Loan Originators.

Loan Originators paid on commission are paid as a percentage of the loan amount. It is important to note that lenders are paid on the loan amount and not the purchase price. The terminology for how a commission is calculated are basis points, or bps (pronounced bips). A bp is 1/100th of a percent. So, 100 bps (bips) is 1 percent of the loan amount. As an example, if you are purchasing a $500,000 home and are putting 20% down ($100,000) the loan amount would be $400,000 and if that Loan Originator makes 100 bps on the loan their compensation would be $4,000.

The higher the loan amount, the more the Loan Originator makes. Period.

The only way a Loan Originator can make more off of your loan is to have a higher loan amount. Now, this could be by you purchasing a more expensive home, or it could be by talking you into putting less down. A good Loan Originator will always talk you through the pros and cons of putting more or less down and give you examples that personally apply to you so you can make an informed decision. It is often true that putting less down can make sense to the buyer.

Using the above example let’s say you are still purchasing a $500,000 home but you decide to put 10% down instead of 20% down. Perhaps you realize that the extra $50,000 can help you furnish the home, pay down some bills or buy a new car. As long as it makes sense you can do this. In this example, the lender would make 1% additional off of the $50,000 higher loan amount, meaning their compensation would increase from $4,000 to $4,500 for your loan.

Most Loan Originators will also show you different programs that may make sense for your situation. You may have the option of an FHA loan, a VA loan, and thank you for your service, or a First Time Homebuyer Conventional Loan. The actual loan amount between these programs make has small effects on the loan amount, but the compensation for the Loan Originator will not change, normally. As an example, if you are choosing between the 3.5% minimum down of an FHA loan or the 3% down of a conventional First Time Homebuyer program that difference is a difference of $2,500 in the loan amount or $25 to the Loan Originator.

Thus, with one Loan Originator working in a call center they may make $500 for originating a $400,000 mortgage or you might work with a Loan Originator who makes 250 bps on the same loan meaning they will pocket $10,000. In either scenario, you may have the same rate, same closing costs, and your disclosures might be identical. When a Loan Originator makes less, the company makes more along with the converse. It is not uncommon for a mortgage company to make 350 bps, the maximum allowed by law, on a mortgage. Thus, using these two examples, the company stands to make somewhere between $13,500 and $4,000 on the same loan based solely on how they pay their Loan Originator.

Finally, if your Loan Originator works for a branch and has a branch manager and/or sales manager they may receive an override or part of the commission. Essentially if your Loan Originators’ company takes 50 bps off the top of each loan for-profit and services then the difference between 300 bps and what your Loan Originator makes is what the branch, branch manager and/or sales manager might make. Regardless, none of this changes what your closing costs and fees associated with the loan are. This is just what the lender is paid to originate the loan, remember this is all just sales.

Most lenders have one goal. Close your loan. How they get there, and how they do their job, varies from Loan Originator to Loan Originator, but in the end, and here’s the brutal truth, they will do anything to close your loan. If your loan doesn’t close… they don’t get paid. 

Period. 

Now, some lenders make an hourly wage but most of those are draws against commission. Meaning they get paid an hourly wage but, essentially, have to pay it back when they close a loan. There is nothing more demoralizing as a lender than to have a nice closing and all of the commission go towards paying off your draws. And they will do anything, and say anything, to make sure that doesn’t happen. 

The other piece most people don’t know is that in most lending organizations the Loan Originators are salespeople. They are paid like salespeople. They are (dis)respected like salespeople and they act like salespeople. If you have ever purchased a used car then you’ve met the cloth most Loan Originators are cut from. 

Of course, no mortgage company would exist without their ‘sales’ staff. The money that is brought in to lenders on these mortgages is the fuel that runs the entire organization. The Loan Originators know this and often act like they walk on water. (Note… they don’t)

If a lender has a chance to steal someone else’s deal, from another company, of course, they will do everything they can. Up to and including making outrageous and morally flexible claims. 

As an honest and transparent lender, I always estimate fees high. I find it always best to set the expectations for the worst-case scenario and have the costs of the fees come in lower. Morally flexible lenders trying to steal a deal will tell you that they have no fees, they do, that there are no closing costs, there always are and that their rates can’t be beaten, they can. If you are shopping between lenders, which I totally encourage, and one lender sends you a Loan Estimate with actual fees and rates that are expected and the lender you are shopping with is unwilling to do so, they are not being honest. If you are the type of person who shares information from an honest and transparent person with someone trying to steal a deal, and you don’t give the original person a chance to meet what is being proposed, then the moral flexibility is on you. 

I work very hard on behalf of my clients. I can compete, I always do and I always win. I always win on honesty and transparency and I always win on going the extra mile and working hard on your behalf. When there is a tangible and authentic loan estimate that I cannot compete with or is a great deal, I let them know. I know what I can do and I know what I am willing to do. 

I recently lost a deal to a client I had been working with for over eight months. I spent countless hours on the phone with them, talking to listing agents and sellers on their behalf and being available virtually every day at virtually every hour. Once they went under contract I did my required duties and sent them a proper Loan Estimate. They promptly sent that to another lender and never gave me the opportunity to meet or review the other lender’s loan estimate. They never gave me the courtesy of a phone call informing me that they went with another lender. They used their moral flexibility. They used my services and time and efforts for the better part of the year to get them their dream home and when the rubber met the road they weren’t willing to give me five minutes. 

I, of course, wish them the best of luck but in the end, treating people who have invested so much on your behalf as a commodity is an insult.

Those lenders who actively employ Loan Officers who act differently are not the ones you want to do business with. Find a partner who you can trust. Find a partner who is willing to invest their time and best efforts in you and your financial future. Find a partner who is honest and transparent. And if you do shop in the end, give them the opportunity to see what they are up against and let them see what they can do to match or beat rates, fees, etc…

Otherwise, you might be the reason why that honest and transparent relationship-based lender becomes a salesperson in the end. Regardless, I remain unswayed. Mine is the best way to be a Loan Originator. That of being a mentor, being available, and being honest and transparent. 

Why is it painful to use a cubicle-based mortgage professional? Well, most often, they are in a call center. So, perhaps, I could have titled this “The Pain of using a Call Center based Mortgage Professional” but, alas, I did not. 

Mortgage Professionals who work in call centers, and in cubicles, in my post-work primarily off of leads. By definition, this means that they are transactional lenders. It’s all, and only, a numbers game. A lead comes in. The lender calls, or answers the call, gets an application going, or doesn’t, it doesn’t matter. They don’t care. If the person on the line is unsure about putting in an application they are either pressured to do so, just put in an application so we can see where you are at, or they are dismissed and hung up on. 

Why does this matter? Well, here’s the rub, if you put in an application and if you provide your social security number and if you click submit if on a website, or simply give someone your social security number you are authorizing them to pull your credit. If someone is worried their credit is too low to qualify and they give someone their social security number then they just approved a hard pull on their credit and its’ associated 4 point cost against their credit score. 

If they were too low to qualify then they are now just that much further away. 

If the call center mortgage professional hangs up to move on to their next lead from this one that will be too much trouble then the interested party is set adrift. They have wasted their time and they have no answers. They are no closer to a home than when they started and they might be discouraged. And this is bad and not fair. 

As I’ve commented already the mortgage process is very complex and borrowers, especially first-time homebuyers and people who might have not gone through the process for an extended period of time, might not be comfortable or familiar with the process. And to simply be dismissed is a disservice. Cubicle and call center mortgage professionals are not incentivized to be mentors and partners through the loan process. They are about volume and production. 

If you love being treated like a number, then click that app or log in to that website recommended by a sports professional. If you’d rather have a partner that works with you every step of the way, find a relationship-based lender. 

There is another important reason why cubicle lenders are a bad loan partner. Availability. Often their hours are set, forty hours a week and not a minute more. If their hours are nine to five and you need them at six-thirty, they won’t be there. If they work Monday through Friday and you need an updated lender letter Sunday evening at seven-fifteen, you are out of luck. Think about when you will be shopping for a home? The days. The times. Are they during business hours? Monday through Friday, nine to five? Or are YOU looking after business hours, after work, on the weekends, etc…? You will want and need to have your lender available during these non-business hours. If you are using an app, a transactional lender, a cubicle lender, or a call center lender you might very well have difficulty getting what you need to put in an offer outside of business hours. And this will be very frustrating. 

Finally, these cubicle, transactional and call-center lenders are paid very little per loan. They have no skin in the game. They have no reason to be available for you when you need them to be available to you. They have no reason to spend more than the bare minimum amount of time on your loan, which, as I’ve already stated, is a very complex process. 

Having someone want to spend as much time is necessary for you to make the best possible decision on what is, most likely, the largest purchase and largest debt in your life to date has huge value. Being reassured that a friendly and interested voice is available to you when you need that answer to what escrows are, to why you need mortgage insurance, to do math about how much to put down on the purchase, and to talk through the numerous products and programs available will always prove to be invaluable. 

Choose wisely.