I am shopping for a mortgage as you advise and gettng mortgage quotes. In my quest for the best mortgage rates in California I noticed that interest rates and costs vary quite widely. Can you tell me how much of what I pay goes to the loan agent? How much do lenders make when I get a mortgage?
Len. Los Angeles
Mortgages are expensive to get because there are many costs that lenders incur and because they are complicated instruments.
Costs of getting a mortgage
- Commitment costs. When a lender commits to providing your funds at a specified rate, it incurs costs (sort of like opening a line of credit) that must be paid even if you don't close on your home loan.
- Administrative costs. Lenders pay staff to originate, process, underwrite and audit your mortgage application. And today there are additional quality control items (such as final credit check and perhaps a call to your employer) that must be completed before your loan can fund.
- Commissions. Then, as you have pointed out, there are commissions to the originator (in-house) or broker (external) for bringing in your business, matching you up to a product, issuing and explaining disclosures and obtaining required information and documents from you.
- Third party charges. Finally, there are charges by third parties, which are necessary to fund your loan --including appraisal fees, escrow services and title insurance.
All of these things make mortgages in California and elsewhere cost 1% to 3% to fund. According to industry publication Mortgage News Daily, the average lender production costs for a mortgage in 2008 were $4,717!
How much does the mortgage lender make?
According to the United States Bureau of Labor Statistics, in 2008 (before the mortgage lending industry met with its current financial difficulties), the median income for mortgage loan officers was $54,700. The lowest 10 percent earned less than $30,850, while the top 10 percent earned more than $106,360. The BLS claims that to earn these commissions, mortgage loan officers work "especially long hours." In addition, in 2008 only 56.59 percent of loans originated actually closed. Those whose income is derived from commissions didn't get paid for their work on the 43.41 percent of loans that did not close.
Mortgage News Daily states that in 2008 the average lender profit on a mortgage was a whopping $305!
What does this mean for those shopping for the lowest mortgage rates?
Most of the costs of a mortgage are expenses that lenders incur and pass on to you. So an efficient lender, one that controls its costs, can offer a better deal than an inefficient lender. When shopping for a mortgage, then, the loan agent's commission and the lender's profit margin are not really a concern of yours; the bottom line is all you need to worry about.