Start a mortgage brokerage business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your mortgage brokerage business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a mortgage brokerage business?
Costs involved in starting a mortgage brokerage business are small. Most brokerages can be started out of the home for little or no money aside from the licensure and basic legal requirements.
What are the ongoing expenses for a mortgage brokerage business?
Ongoing expenses for a small mortgage brokerage business are minimal. Usually, all you have to pay for is office space and labor expenses. Larger firms incur higher expenses due to higher labor, insurance, and office-related expenses.
Who is the target market?
Target market for this business includes businesses looking for commercial property, individuals and families looking for residential home(s), and investors looking for real estate or rental properties.
How does a mortgage brokerage business make money?
This business makes money by receiving a commission (a percentage of each loan) in return for bringing customers to the lender.
How much can you charge customers?
The fee is paid either by the borrower or the lender, and is usually between 1% and 2% of the total loan amount. Some brokerage firms also charge fees for applications or other ancillary services.
How much profit can a mortgage brokerage business make?
Mortgage brokerage firms can have a high profit margin. Smaller firms generally have a higher margin than larger ones, owing to the fact that smaller firms have lower overhead and ongoing expenses. Margins can range from 10% up to 50% or more, depending on the size of the operation.
How can you make your business more profitable?
Add ancillary services. Most borrowers need some type of help with their credit. If a borrower doesn't qualify for a loan, your firm could offer to help them improve their credit or partner with other firms that specialize in this area. You can also partner with insurance agents and real estate brokers or realtors to offer an "immersive" experience for your clients.
Check with your state. Some regulations prohibit mortgage brokers from engaging in sideline businesses.
As a mortgage brokerage company, you don't need to focus on the residential mortgage market, even thought this is a popular market. You can also fund real estate investments and provide capital to investors to increase profits for the firm.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your mortgage brokerage business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: You can get $300 when you open a Chase Total Business Checking® account with qualifying activities. Learn More.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act was passed in 2008, requiring all mortgage brokers to have met certain minimum standards for licensing. This includes 20 hours of a class from the National Mortgage Licensure System, as well as passing a national exam, the SAFE Mortgage Loan Originator Test.
State & Local Business Licensing Requirements
In addition to the federal standards each state has its own licensing requirements for mortgage brokers. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A mortgage brokerage firm business is generally run out of an office. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a mortgage brokerage business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your mortgage brokerage business will be in compliance and able to obtain a CO.
Mortgage brokerage businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a mortgage brokerage business
Start by networking locally. If you want to advertise, start small with business cards, flyers, and local ads in the newspaper and online (pay-per-click).
How to keep customers coming back
Most people don't make a major real estate purchase very often. So, if you want them to keep you in mind for future business, you need to stay in contact with them. After the loan closes, follow up with them to make sure everything worked out fine for them with the lender. If possible, get them on your email list and send regular updates about the local real estate market, insurance tips, money-saving tips, and ideas for living a better life.
Building a relationship with your clients will make you more than just a brokerage firm that got them a loan for their house that one time.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Mortgage Brokerage Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Owning a mortgage brokerage business is not for everyone. You need to have a special affinity for numbers and finance. It also helps to have at least a basic understanding of the banking industry, and specifically the mortgage industry. You should be detail oriented and good with numbers. You also should have a passion for helping people. The mortgage business is highly commoditized. The most successful brokerages are those that build relationships with their clientele.
What happens during a typical day at a mortgage brokerage business?
Your day starts by collecting applications. The review process can take some time. Some borrowers don't have good credit and need help with their credit report and score. Others just need to find the best deal in the marketplace.
This is where you come in. Brokers who work for a mortgage brokerage business spend a significant amount of time emailing and calling lenders, using online quoting systems, and talking to their contacts in the industry about the best products available for their clients and customers.
They take applications, sort them, and talk to potential borrowers about what they qualify for. They also follow through on those applications with the lender to make sure all paperwork is in good order and that they are complying with all federal lending regulations.
What are some skills and experiences that will help you build a successful mortgage brokerage business?
You must be detail oriented, understand basic finance and financial calculations, and be licensed in your state to do business. In addition to the basic requirements, you also need to complete related coursework in finance and be able to review lending and financial documents and conduct research. Classes in computer use are not mandatory, but helpful.
You also need to attend pre-licensure education. The 2008 SAFE Act requires all mortgage brokers to be licensed. All licenses issued throughout the country are maintained by the National Mortgage Licensure System (NMLS). NMLS also provides brokers guidance on getting licensed in your state. Licensure involves 20 hours of pre-licensure programming and you must pass an exam to practice in your state.
What is the growth potential for a mortgage brokerage business?
The firm can be small or large. Typically, a small mortgage brokerage firm consists of a team of 1 to 5 people. If you own and operate the business, you can run the business out of your home. However, most brokerage firms operate out of an office, since most borrowers want to meet with a mortgage broker in a professional setting.
HomeSure Lending, Academy Mortgage Corporation, and Crestico are all examples of large mortgage brokerage businesses.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a mortgage brokerage business?
Network. The mortgage industry is built on trust and referral business. While some larger institutions are able to use advertising to sell loans, many small mortgage brokerage businesses rely on a good reputation locally. Partner with successful local real estate agents and insurance agents. These professionals are frequently in contact with people who are or may be looking for a home.
How and when to build a team
If you're starting out at a one-person firm, then you don't need a team. However, a small mortgage brokerage business typically has a team of between 2 and 5 people. You may work as a loan officer or oversee other loan officers. You'll need an HR or account manager and a bookkeeper. You may also need someone to answer the phone, make appointments, and take messages.