Starting a Mortgage Brokerage
Learn your state’s rules. Every state has its own rule and requirements for licensing, so you’ll need to find out what is necessary for the state you want to work in. These licenses are usually covered by the state’s commerce office, or a similar department. Differences in state laws include whether you need a license, what kind of mortgages you can issue, and if you are required to have a physical office in the state. The Nationwide Multistate Licensing System & Registry (NMLS) system has a list of each state’s licensing requirements.[1]
Apply to NMLS. The NMLS helps to govern the regulations and licensing for mortgage brokers nationwide, and joining it will get you into the national system. There are a series of steps you will need to take in order to join, each of which will also include a shipping or registration fee. You will need to undergo a background check, which includes submitting official fingerprints. If you have fingerprints on file with NLMS that are less than 3 years old, you will not need to be re-fingerprinted. You should know the results of your background check within 48 hours. Pass the NMLS exams. The licensing exams from the NLMS cover both federal and state regulations. You will have 4.5 hours to complete both exams, which are typically not taken on the same day. You will need a pencil and calculator to work with, and perhaps other items depending on your state's requirements. You need a 75% score to pass the exams, and you should receive your results immediately after completing the exam.
Apply for a state license. Once you are certified by NMLS, you need to get a license from the state you intend to work in. Each state will have a different office you need to contact for the license. Some states, such as California, have multiple offices you can register with. Like NMLS registration, these licenses will probably require a background check, as well as proof of citizenship, insurance, a surety bond, and addition education requirements beyond those listed in the SAFE Act.
Maintain your license. You will need to annually renew your broker license. Other requirements and fees vary by state, though you can do many of them through the NLMS. Make sure you are able to access your online account through NLMS, which will make the process quicker. As of November 1, you can request renewal through the system. Once you make the request, your state agency will be notified, review your request, and communicate any issues they find. At this point, your state is responsible for your renewal application Businesses can request licenses on behalf of their individual licensees. If you are working for another company before starting your own, check with your company to see if they are doing it for you.
Starting Your Business
Decide want kinds of mortgages you want to specialize in. Like any new business, you will need a niche to get started and find new customers. Look for groups of people who aren’t being served well by existing mortgage companies. Try to figure out if you have some way to reach out to them and help resolve their issues in applying for a mortgage. Make sure you abide by the rules set by the Equal Opportunity Council.
Create your business plan. If you are going into business independently, you will need a plan to help establish your structure and explain your goals to potential investors and employees. Describe the market you intend to reach and how you plan to target them. As the mortgage business is pretty crowded, you will want to identify how you intend to create and fill a niche in the market in the face of stiff competition.
Obtain office space. You can rent, lease or buy office space. You will want to find a place that is easily accessible to your clients. You may also need to purchase office supplies as well as equipment such as a fax machine, an office computer, a phone, and Internet access. Some states require you to have a physical (or brick-and-mortar) office location to register in the state. Make sure you know the laws of your state before registering.
Register the business in your state. Every state has a different office and requirements for registering a new mortgage company. In New York, for example, the NLMS will go through the Department of Financial Services, and require documentation such as a credit report, $10,000 surety bond, business plan, and other documents involving awareness of legal specifications. Many states do registration through the NLMS, so if you are in the system, you’ve already got a head-start.
Get tax information. Your business will need to pay taxes, so you will need a tax identification number for federal and state offices. Get an Employer Identification Number (EIN) from the IRS. You can apply through the IRS website, or you can fax or mail a completed SS-4 form. Filing online will get you an EIN immediately, while the mailed or faxed form should return a number in about four business days. Filing for an EIN is free. When you incorporate as a business, and register in your state, you should receive a state-level tax identification number. Each state has different obligations and requirements, so make sure you know your state's relevant laws.
Locate vendor partners and wholesale lenders. These will be the companies you work with to secure loans. Without them, you won’t be able to provide the services you are offering. Look for companies that are willing and able to service the niche you intend to reach. You will be working closely with these companies, so choose ones you trust. The more lenders you work with, the wider the array of loans you can offer.
Growing Your Business
Market your business. This is a very personal business that thrives on interaction. Because most of your income will come from commissions, you will need to constantly find and add new customers. Referrals, first from friends and family, then other customers, are vitally important to bringing in new business. There are a number of ways to promote your business beyond basic networking. Make sure you have a strong online presence on sites like LinkedIn and Google Plus, as well as service review sites like Angie’s List. You should also develop your own website, and look for ways to get your name into the community through newspaper articles and public forums. There will always be a market for people who want information on buying a home.
Hire additional staff. As your company grows, you may want to hire additional brokers, loan officers or loan processors. With a bigger staff, you may need to hire human resource and payroll services. As you expand, make sure you keep track of your business’ and employees’ tax information. Make sure your workers fill out both the I-9 Form (for employment eligibility) and W-4 Form (for taxation). Keep all your employees' tax forms filed for easy reference.
Implement a quality control program. Granting mortgages is a complicated and expensive process, one you will want to get right. As your company grows it is important that you make sure your processes are covering all the necessary requirements for yourself, the bank, and your clients. This is something that is good to do regularly to ensure a quality process, rather than waiting until issues begin to arise. Take a random sampling of your mortgage applications, and check to make sure that they have been filled out appropriately, that the information in them can be properly verified, and that they fulfill requirements for federal and state regulations as well as your business’ best practices. This needs to be a traceable and repeatable process, so you should have clearly defined steps for carrying out quality control. These steps should include written steps that detail what was reviewed and what the reviewer found.
Open a new branch. If your business is going well, and you want to reach new clients in another part of town, or in a different town, you can open up a new office. Find a location near where you expect to get business, and start advertising locally. States may have different requirements for opening new offices. New York, for example, requires a separate fee and license for each branch office, while Georgia only requires the new branch to register without needing an additional license.
Expand your niche. If your company can develop a strong reputation for the quality of your work, you may consider expanding the kinds of mortgages you offer. This reputation is important because of the personal nature of the mortgage business. If people trust you to steer them in the right direction, they will be more willing to consider different products or services.
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