How Do Mortgage Brokers Make Money?

Tim Sickinger, Principal, Ladd Financial   

How does a mortgage broker make money?

Mortgage brokers get paid typically on the percentage of the loan amount. And that percentage will vary anywhere from — could be as little as half a percent to as much as two percent, but in general, legitimate mortgage companies typically make between a point and a point-and-a-quarter. And that's a good number, because that's — we call it parity pricing. If I have a relationship with a local bank, and I'll use People's Bank as an example — People's no longer is a wholesale lender, they've gotten out of the business, but they were very recently. If you were to go into People's Bank and apply for a mortgage on, let's say, a 30-year fixed at six-and-a-quarter percent, zero points, when Ladd Financial did business with them as a mortgage broker, we could offer you the same six-and-a-quarter and zero points through People's. People's Bank would pay Ladd Financial a point and a quarter to deliver a loan that was basically ready to close — has the appraisal in it, we've verified all the income and the assets. People's is willing to do that because they don't have to have the overhead to employ a mortgage originator, an appraiser. All the particulars that go into making a mortgage can get pretty expensive. People's Bank has decided, well, if we want to lower our overhead and not have to have as much space for these people, we'll pay a point-and-a-quarter to have somebody deliver a mortgage that's basically ready to close. So that's basically how mortgage brokers get paid.

Tim Sickinger is a Principal at Ladd Financial, a mortgage lending firm in Westport, CT.