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.
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.
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