How to Start a Mortgage Loan Business

Tuesday, September 23, 2014

How to Start a Mortgage Loan Business

Becoming a mortgage lender (banker), is different from starting a mortgage brokerage business. Although mortgage bankers do often broker loans, they differ from brokers in that they are permitted to lend money to those seeking home financing. Becoming a mortgage lender, therefore, involves a special license. The process of obtaining a license contains a relatively detailed application process. Read more for help.

Developing your own business in the mortgage loan sector may be simpler than it sounds. The benefits of setting your own hours and retaining your commissions are enticing to many. You can avoid office drama and politics and create your own advancement opportunities. Just keep in mind that handling some logistics properly will be necessary to get your mortgage loan business up and running.

Individuals can learn how to start a mortgage company by first gaining experience in the mortgage industry. Like any business, it begins by taking the appropriate steps. One of the first steps for individuals to take may be deciding that they want to own a business. Then, they can go on to form a company. Another step individuals may take might be to obtain a mortgage license.

In some ways, starting a mortgage company is similar to starting any other kind of business, but in certain aspects its a lot different. Working for an established loan officer, a lending institution or in the real estate industry might be one way that individuals can gain experience prior to starting their own mortgage company. Another option for some individuals might be to join an already established national or regional company.

What is Needed to Start a Mortgage Company?

In regard to starting a mortgage company, The Utah Division of Real Estate gives one example of what might be necessary for their state. Other states have their own list of requirements, which might include:

License(s)
Educational requirements
Previous industry experience
To seek tips and advice from other mortgage company owners
Office space, equipment and supplies
Purchase a mortgage processing software
Lender approvals
Appraisal, title/escrow contacts
A business and marketing plan
Potential clients and the ability to grow a customer base
Insurance

The United States Department of Housing and Urban Development has an on-line library that contains numerous mortgage-related articles. The United States Governments official website also covers a host of mortgage related topics.

What Type of Licensing, Legal Paperwork and Investment is Required?

The U.S. General Services Administration is one source for individuals to consider when looking at the various aspects of how to start a mortgage company. This site offers information and articles about some of the specific requirements.

Individuals may want to incorporate the business as a limited liability company (LLC) in order to protect their assets, gain credibility and to meet state requirements for licensing. This is also a well-suited option for sole business owners.

The Internal Revenue Service has published an article that provides individuals with more information. According to the article, LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

In regard to licensing, licensing varies from state to state. Individuals should check with their state to see what is required in order to obtain a license.

According to The Nationwide Mortgage Lending website, a system has been established to aid individuals in the mortgage licensing process. The Nationwide Mortgage Licensing System (NMLS) has been designed to streamline the licensing process, improve supervision and increase transparency in the mortgage industry. NMLS contains a single record for each mortgage lender, broker, branch and loan originator. This single record can be used to apply for, amend and renew licenses in any participating jurisdiction.

State licensed mortgage lenders, brokers and loan officers may use NMLS to apply for, amend, update and renew licenses. NMLS is a secure, Internet-based licensing system for the residential mortgage industry. Regulators us NMLS to process and manage licenses in their jurisdiction. State regulators have been working since 2003 to develop a nationwide licensing system for the residential mortgage industry. It streamlines the licensing process, enhances supervision and increases consumer protection. Be sure to check the website for specifics.

Individuals may check the State Licensing Resource page for more information about each state.

The amount of the investment may vary, but there are costs associated with starting any kind of business. Requirements, fees, insurance costs and operating expenses are among the various aspects to consider. Individuals may contact the Secretary of State to find out about what fees and licenses are required for each state.

The Secretary of State can also provide individuals with information about required bonds and necessary insurance policies. Many states require mortgage companies to post at least a $10,000 surety bond in order to operate within the state.

The Federal Trade Commission has a published list of glossary terms, which may help individuals understand the various terms associated with starting a mortgage company.

What are the Benefits of Starting a Mortgage Company?

The benefits of starting a mortgage company may be great. This kind of business can give individuals freedom, and provide them with an opportunity for unlimited earning potential.

Also, once it is established, there are several ways that individuals can grow a mortgage company. A successful mortgage company can grow by referrals, repeat business or with a targeting marketing strategy.

Instruction:

Step 1

Obtain your mortgage license through the state. This should be done through the same state office that handles real estate business. A simple search on your state’s government website should point you in the right direction. Every state differs on the specific requirements, such as education or experience required or physical office requirements. The state will provide you an application, which requires a nonrefundable fee of at least $1,000 to process the application.

Step 2

Determine your business location. So much business is accomplished online today that you may not require a physical office right away, but you should have a designated space in which you can work. Without a physical office where you can meet with clients, you will need to be willing to meet in client homes or other agreed-upon locations. Regardless, you will need a computer, fax machine, printer, Internet access and other office supplies.

If you decide to rent a physical office space, consider renting one with related businesses that can be potential referral sources for your mortgage business. For example, choosing an office complex with a real estate agent and an appraisal company nearby may help drive targeted customers to your business.

Step 3

Complete the legal procedures involved in starting the business. Select and register a business name and decide on a business structure (sole proprietorship, partnership, LLC, S corporation or C corporation). Depending on state and local law, you may also need other business licenses and permits. Contact your county government's office to determine what is legally necessary to open your business. When deciding on a name, you may want to choose one that includes a description of your business. For instance, include "mortgage" or "loans" somewhere in the name.

Step 4

Develop a product offering. Contact wholesale lenders that offer various loan products that you, in turn, can offer to your clients. These lenders will have specific loan approval processes, so you'll need to become familiar with all of those processes as well as the loan products before offering them to clients.

Step 5

Select consumer credit report vendors, appraisers and title/escrow settlement service providers. This team can assist you in serving your customers thoroughly. Take your time in selecting the right teammates whom you can trust.

Step 6

Create a marketing plan. Without clients, your mortgage business will not succeed. Detail your plans for obtaining clients and referrals. The marketing plan can also help you develop your image and knowledge of your target market. Begin listing your business with local media outlets and directories. You will need to create printed materials that inform the public about your new business and encourage it to think of you. These will include brochures, business cards, stationery and signage. It is also important to develop an online presence. Your website should be dynamic and active, displaying a corporate image of professionalism.

Step 7

Contact the office in your state that issues mortgage banking licenses. Representatives from this office will furnish you with an application package. As part of this application, you will likely be required to pay a non-refundable application fee. Depending on your state, this fee will range from $800 to $4,000 and must be paid at the time of application.

Step 8

Know your net worth. To become a mortgage banker, most states require that each applicant have minimum net worth. Although state net worth requirements differ, it is common for your tangible net worth to be required to be in $150,000 to $500,000 range. You will also likely be required to be bonded, insured. This information must be submitted in the form of an official and detailed balance sheet. Depending in which state you wish to do business in, these financials must be created by a CPA, attorney or both. It is, therefore, wise to hire both.

Step 9

Clear your credit report of derogatory accounts. Having poor credit, littered with unpaid collections and judgments could result in the rejection of your application. It is, therefore, important to satisfy all outstanding accounts. If you have ever filed for bankruptcy, you may be required to re-establish your credit for specific period of time before applying. Include written letters, thoroughly explaining your negative credit.

Step 10

Secure a line of credit. To be a mortgage banker, you must prove that you have access to money you will use to fund your loans. This means you will have to secure a line of credit with a lender. Most states require that you have access to a minimum of $250,000 to $500,000 to lend to your clients. It may also be required that the lender supplying your line of credit submit a "Letter of Credit," or LOC, verifying availability of your credit line, otherwise known as a warehouse line.

Step 11

Choose a location for your business. Most states require mortgage banking firms to have their own addresses, different from the homes of their principals. To satisfy this common requirement, secure a location acceptable to your state's licensing agency before submitting your application.

Step 12

Satisfy individual licensing requirements. Some states require that all of your firm's principals and loan officers be individually-licensed to originate mortgage-backed home loans. Principals may also be required to have specific experience in the industry of up to three to five years before becoming banking licensees.

Step 13

Submit your application. Most states require that several documents in your application be properly and legally stamped and/or sealed by an attorney or accountant before they are reviewed by a licensing board. After you've satisfied all of your state's requirements, submit your application to your state's licensing agency.

Tips & Warnings

Create a business plan before applying. Know your state's laws regarding mortgage bankers before originating loans. Incorporate if needed. Some states will not issue mortgage banking licenses to sole proprietors.

Application Credit line Individual licensing (if applicable) Financial information, personal and corporate

Secure your license before lending money to clients. Never do business as a banker without being licensed. Doing so could result in stiff penalties including fines and prison.

Reference

No comments:

Easy Tips and Ideas to Start Business

Although anyone can start a business, many people fail because of a bad product or improper research. If you want to start your own business, you can improve your chances for success before you even begin. In order to make your business successful, start strong and make sure that your idea will hold out for the long haul.

Have a Good Product

Ensure that you plan to sell something useful. Although you may think that your product is important or special, that doesn't mean the general public will agree. Ask friends, family and strangers what they think of your product. If they don't seem that interested, ask them why. With their suggestions, you can either improve the product or scrap the idea completely. According to Brad Sugars of Entrepreneur magazine, most small businesses fail because they sold a product that didn't have an adequate market. This also applies to small businesses that provide a service. A lawn-care business might be useful for part of the year in a northern state, but it is in-demand year-round in the south. Consider whether people will actually want to use your service and get constructive advice from those not afraid to give their opinion.

Research Local Businesses

Research local companies before starting up your own business. This will not only give you an idea of the amount of competition you will have, but it will also help you price your product or service. If you're looking to start a wedding photography business, you may find during your research that the market is over-saturated in your area. If not over-saturated, you should contact each business and ask them for a price list. Alter your prices so you can stay competitive with the competition in town. Researching similar local businesses will also help you decide where to locate your business location. Try not to start up a store or office close to another business of your type. If your small business is located away from similar business types, this will cause locals to choose you over businesses that are farther away from where they live.

Get Professional Advice

You may know someone who has started their own successful business. Ask him for advice and listen to his stories of how he started his company. You may gain useful advice on the good and bad ways to start a business. Local entrepreneurs can also introduce you to local product providers or advertisers that you may not have met without their help. Accept any advice with open arms, especially if the advice is coming from someone successful in the area.

How to Calculate Business Start Up Costs

Starting a business in no easy endeavor. It takes a great deal of research, perseverance and hard work. While sweat equity will make your small business more successful, you will most likely need real capital to get the business started. Before you start raising capital and/or investing your own funds, the first thing you need to do is determine the total start-up costs.

Step 1

Determine your costs of sales. For most small businesses this means inventory, the cost of raw materials, manufacturing equipment, shipping, packaging, and warehousing. However, not all businesses sell products. In this case, the cost of sales is primarily the direct labor involved in making the sale. For example, to open a small shoe business entails purchasing enough inventory ($10,000) to stock the store.

Step 2

Determine professional fees. Planning your business structure, i.e., limited liability corporation or general partnership, means hiring an attorney. There may also be the need to pay an attorney for help with establishing trademarks, copyrights, and patents. In this scenario, that puts total professional fees at an estimated $20,000.

Step 3

Determine technology costs. Technology can greatly reduce the cost of labor for small business if used effectively. Most small businesses require computers, printers, cell phones, website development, Internet access, software applications, information security, data storage, and outsourced information technology (IT) consulting. If the cost of technology is $10,000 to start, add an additional $5,000 a year for maintenance (hint: maintenance is not included in start-up costs).

Step 4

Determine administrative costs. This varies with business types and may include items such as business insurance, office supplies, product packaging, parking, rent, express shipping, desks, chairs, fax machines, phones, or anything else necessary to operate the business daily. A good estimate for start-up administrative costs would be $5,000 for the first six months.

Step 5

Determine initial sales and marketing costs. Now that you have your product, you need to let folks know about it. Sales and marketing costs generally include marketing materials for presentations, printing stationery, business cards, advertising, trade show events, and public relations. These initial sales and marketing costs can add up to $3,000.

Step 6

Determine the wages and benefits needed to secure a staff. This includes employee salaries, benefits, workers compensation, and payroll taxes. Let's put the cost of wages and benefits estimated at $20,000 for the first three months of business.

Step 7

Add all costs associated with starting the business for a total. Be sure to only include business start-up costs that will be incurred in the first three to six months of operations. For this example, the calculation is: $10,000 + $20,000 + $10,000 + $5,000 + $3,000 + $20,000 = $68,000.

Pages

Tuesday, September 23, 2014