The National Association of Realtors reports that sales prices are continuing to fall, from an average of nearly $200,000 five years ago to around $172,000 today. A decline in average sales prices translates into a decline in average loan amounts—and since most mortgage loan originators are paid a basis points commission on the loan amount—that means less money for you.
But you can reverse that trend and improve your average loan amount and the commissions you earn. Here are five ways to do it:
1. Give loans away. Let's start with the most radical idea: give small loans away. If small loans pay you very little (which is true) and most small loans are more challenging to process and close than bigger loans (which is normally also true) consider handing off these deals to another originator. “If I get a loan that comes in and it's less than $100,000, I give it to one of the other loan officer here in our office,” one top producer recently told me. “Unless it's a loan from one of my past clients or a direct referral of one of my clients, I don't take it. I'd rather spend my time sourcing a bigger loan where I'll make some real money.”
You might argue that “a loan is a loan” and you still get paid for smaller loans, and you'd be right. But remember that your time is money and the most valuable thing you have. Spending a lot of time on small loan amounts that pay small commissions is no way to make big money in this business.
2. Shift from refinance loans to purchase loans. In most cases, a refinance loan will mean a smaller loan amount than a purchase deal. In a recent project I conducted with one of my lender clients, we reviewed a random sample of 500 purchase and 500 refinance loans they closed last year. We discovered their purchase loans overall averaged $16,400 more than their refi loans. Raising your average loan amount by around $10,000 (or more) means a higher commission on every deal—and over the course of the year a significant difference in overall income.
This data was very powerful in delivering a sales training workshop convincing their loan officers to switch to writing more purchase loans. (You may want to conduct this same experiment for yourself by reviewing the last 10 purchase loans and the last 10 refinance loans you closed to see what the difference is for you.)
3. Market a different loan type. The loan programs you promote will dictate the loan amounts you'll end up with. For example, a loan originator promoting bond loans, state housing financing programs and Federal Housing Administration-insured loans will experience a substantially lower average loan amount than an originator selling jumbo financing, investment loans and Fannie Mae fixed rate products to move-up buyers.
If you are sending out postcards to apartment addresses marketing affordable housing options or delivering seminars for first-time buyers, don't expect a lot of big deals to fall your way. The loans products you focus on determine the types of loans you'll originate—and how much money you will earn.
4. Move your office. (If you thought my first idea was radical, you'll love this one.) It's a fact that most of your business comes from your surrounding market. If your physical location is situated in an affluent area or upscale building around higher-end businesses and neighborhoods, you are naturally going to see more high-end loan opportunities. If your office or branch is located in strip center or a “lower rent” part of town, well, you get the idea.
Let's be real; most originators stay pretty near to home base and deal with real estate agents in close proximity. Your physical location greatly affects the type of loans you'll write. I've seen lenders move their officers to a better part of town and experience a dramatic increase in loan amounts almost overnight.
5. Upgrade your referral sources. To write loans with higher average loan amounts, you'll need to align yourself with the caliber of referral partner who can send you that level of business. Working with top-quality real estate agents who target bigger homes, builders who build in the high-end price range, and CPAs and financial planners who serve an affluent client base will yield more opportunities to originate more higher-priced loans with higher commissions.
Take a close look at your current referral partners. Go back through last year and calculate the average loan amounts from the deals they sent you. If those numbers are substantial, you've got a good book of business. If the average loan amounts are low, you may need to open up some new doors to some new and more profitable partners.
The bottom line is that you are a commissioned salesperson in business to make money, and your commission is based on the amount of each “sale” you make. As you work to raise your average sale, you'll continue to make more money year after year.
