Start a Mortgage Broker Business

Even in harsh economic times, companies and consumers apply for mortgages in order to finance the purchase of real estate, and many do this with the help of mortgage brokers. A mortgage broker business acts as an intermediary between the party looking to buy real estate and the lender, oftentimes a bank, which can provide the funding for the real estate. A mortgage broker business gains a commission, usually a percentage of the loan amount, as payment for its services. If you have a talent for finances and strong entrepreneurial skills, read the steps to learn how to start a mortgage broker business.

Steps

Gaining Knowledge and Experience

  1. Learn about being a mortgage broker. A mortgage broker takes the hassle out of finding and securing a loan. In return, they take a commission, usually called origination or broker fees, that are between one and two percent of the value of the loan. This may allow the mortgage-seeker to find a willing lender with a lower rate and save themselves time in the mortgage search process. Essentially, the mortgage broker acts as middle man between the loan originator and the mortgage-seeker. However, some mortgage brokers also sell existing loans from one lender to another. As a mortgage broker, you would spend your time doing the following:
    • Assessing borrower finances.
    • Finding the best mortgage rates for clients.
    • Getting mortgage pre-approvals.
    • Filing applications and securing documentation.
    • Advising clients on their options.[1]
  2. Decide that you want to be a mortgage broker. If the above activities sound interesting to you and you have the entrepreneurial itch, becoming a mortgage broker may be right for you. Know that this career will require a good amount salesmanship, as you as essentially adding yet another step to the complicated financing process. This is in addition to the fact that mortgage brokers are much less plentiful than they were before the financial crisis. However, loans sold by mortgage brokers still account for a good percentage of the mortgage market.[1]
    • However, due to the recovering housing market, it is possible that the mortgage broker industry could soon be on the rise as well.[2]
  3. Obtain your mortgage broker's license. In general, you will need a mortgage broker's license to practice in your state or province. However, there are some states that do not require you to be licensed. Search for your area's specific laws to find out more about what is required of you.[3] You may need a college degree or equivalent instruction in mortgage brokering before taking the state mortgage broker exam.
  4. Work for a mortgage broker or realtor for at least a year before starting a mortgage broker business. This will teach you the ins and outs of the business and expose you to a number of different scenarios that will help build your practical knowledge of the field before starting a mortgage broker business.[4]

Planning Your Business

  1. Nail down your target market. Determine whether your business will focus on loans for residential real estate or commercial real estate. Each market segment requires a distinct marketing approach and contact with different lenders.
    • Alternately, you could decide to focus on a certain type of borrower. For example, you could specialize in clients buying a second home or those with unpredictable income sources. This could help you differentiate yourself from other brokers.[4]
  2. Construct a detailed business plan. Write out your business's goals, purpose, and strategy in an official business plan. This is not only invaluable when applying for the funding necessary to start a mortgage business, but also to refer to periodically to see if you're on track with the progression and growth of your business.
  3. Apply for a mortgage broker license, if necessary. Some states require that a mortgage broker business obtain a special license and/or other certifications. Go to http://mortgage.nationwidelicensingsystem.org/slr/Pages/default.aspx and select your state to determine whether or not you need to do this. The site also links to applications for obtaining these licenses.
  4. Obtain the necessary funding through a small business loan or private funding. Start-up costs will be required and will vary depending on the nature and location of your business. You may need a loan to get started, particularly if you're renting office space. If you do, make sure your loan covers the costs of an office space, office equipment, insurance, and your living expenses for at least 6 months.
    • This type of business typically requires between $2,000 and $10,000 in initial investment. This number may be smaller if you choose to work from home.[5]
  5. Apply for a business license by registering your mortgage broker business with your city. Contact your city or county hall to inquire about the necessary paperwork. There may be a small fee associated with registering a business.

Opening For Business

  1. Choose your office location, if you plan to have one. If you're going to meet with clients in an office, you'll need one that is visible and accessible. Try to also choose an office space that is within your budget. You can move up to something nicer if your business is doing well after a year or so. Make sure that wherever you choose has reliable services, like phone and internet.
    • Consider working from home if you have adequate space and quiet there. This can save you a large amount of money, as office space rent is typically the most expensive startup cost you will face.
    • Mortgage brokers that work from home often meet their clients elsewhere, like at the client's property or the loan originator's office.
  2. Acquire the necessary office equipment. To start, this will simply include things like a computer, desk, fax, printer, and telephone. Try buying everything second-hand to save money. All you need at this point is for your equipment to work properly.
    • Again, if you choose to work from home, you may already have many of this equipment in place and will be able to save money. However, be sure to have a dedicated business phone line.
  3. Purchase liability insurance. In the event that your mortgage broker business is sued, your insurance will cover the costs of a lawsuit. Liability insurance can be purchased from any large insurance provider. Contact a local insurance office and ask what insurance services they can offer your business.
    • More specifically, the type of insurance you will need is referred to as Errors and Omissions (E&O) insurance. This type of insurance protects you from the financial consequences of any errors or omissions you make when dealing with lenders or clients, including the costs of judgments, settlements, and defense costs.[6]
  4. Market your mortgage broker business. Some mortgage brokers gain business largely through references and referrals, so start by offering your services to family and friends.[4] However, you may also be able to gain significant business by advertising your services locally. Be sure to emphasize what you can do for your clients, like getting them a lower interest rate and saving them time, in your advertisements.
    • If your target market consists of residential consumers, advertise in local publications and in residential real-estate magazines.
    • To reach business clients, advertise in commercial real-estate magazines, at your local chamber of commerce, and in trade magazines.
  5. Open your mortgage broker business. Take on your first clients and begin assessing their financial situations to find the best mortgages for them. Treat each client with special attention and be genuinely helpful so that they will recommend your services to friends and family.

Tips

  • Consider offering informational material about mortgage financing and credit rebuilding to customers. The more informed they are, the better choices they can make, which will lead to higher customer satisfaction.
  • Join trade organizations in order to stay abreast of new developments in your field.

Related Articles

Sources and Citations

  1. ↑ 1.0 1.1 http://www.fool.com/investing/general/2015/11/28/what-is-a-mortgage-broker-and-should-you-use-one.aspx
  2. ↑ http://www.stamfordadvocate.com/business/article/Mortgages-on-the-rise-will-brokers-follow-6596642.php
  3. ↑ http://www.mortgagenewsdaily.com/mortgage_license/
  4. ↑ 4.0 4.1 4.2 http://www.wsj.com/articles/SB10001424052748703426004575338844017052822
  5. ↑ http://www.entrepreneur.com/businessideas/mortgage-broker
  6. ↑ http://www.insurancejournal.com/magazines/features/2004/07/19/44745.htm
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