Successful loan officers often think about going independent and running their own business. It has probably crossed your mind a few times, and you find yourself calculating what it would be like to make the full commission (less the business expenses). Whether you’re ready now, or just considering possible plans for the future, it all starts with the right mindset and some research.
Lucky for you, I’m surrounded by successful mortgage brokers. I’m going to walk you through the basics that I learned from them, as well as some nuggets I found through industry resources. Before I walk you through how to become one, let’s start with what a mortgage broker does.
Mortgage brokers provide personal service and expertise directly to the communities they serve. They are experts in the homebuying and financing process, and have access to multiple lenders to provide diverse product offerings at competitive pricing. They help the borrowers save time, evaluate their options, and find the best possible mortgage for them.
But how do you become an independent mortgage broker?
Mortgage licensing laws and regulations differ from state to state, but here are the general steps you need to take to become a mortgage broker:
- Have your high school diploma or GED
You don’t need a college degree to become a mortgage broker. However, all 50 states do require a high school diploma or a General Educational Development (GED). While a college degree isn’t required, taking courses in finance, accounting, business administration, and marketing can be a big help in laying a solid foundation for your future broker career.
Many mortgage brokers are former loan officers who decide to move into independent mortgage work or real estate agents interested in the financial side of their field. Having previous relevant training can be a big help. Spending a few years working at an established mortgage company is an excellent way to gain experience before going at it alone.
- Take your pre-licensing training
Regardless of what state or states you plan on operating your mortgage business, the next step is preparing for licensing by undergoing the required training. The Secure and Fair Enforcement Licensing Act (SAFE) requires states to license all mortgage loan originators. You need to obtain your license through from Nationwide Multi-State Licensing System and Registry (NMLS). The process begins with a 20-hour class on federal and state mortgage laws. You can find available classes through the National Mortgage License System (NMLS) website.
- Pass your National Mortgage License System (NMLS) test
When you complete your pre-licensure course, you must pass the National Mortgage License System (NMLS) exam to get your license. Before you take the test, you can use practice tests to prepare and identify areas to work on or find a group of peers to study with. The test (also called the SAFE Mortgage Loan Originator Test) includes broad mortgage practices and state-specific regulations so instead of focusing on memorizing specific questions and answers, make sure you understand the concepts behind them.
The SAFE exam will test you in five major categories:
General knowledge of mortgage origination
Loan origination activities
Uniform state content
When you’re ready to take the test, you need to create an online account in NMLS in order to enroll. Once enrolled, you have 180 days to schedule your exam. You must pass with at least a 75% on both the federal and state portions of the exam. If you fail the exam on your first and second try, you must wait 30 days before retaking it. After the third fail, you have to wait 180 days. Information on the test, test locations, and scheduling can all be done on the NMLS website.
- Pick a physical location or online mortgage brokerage
While most mortgage brokers wish to have a physical location for their customers’ ease of accessibility, you want to take into account the expenses of having a brick and mortar space: the price of rent, insurance, furnishings, etc. You’ll also want to plan practical details like hours of operation. If you wish to have an office, find the location and make a plan.
Work from home has become more popular than ever so what if you want to skip the brick and mortar and go fully online? If you’re interested in establishing a fully online mortgage brokerage, you need to check your state laws to determine whether your state allows an online brokerage business. If you’re pursuing an online business, you’ll want to plan for a functional home office space where you can work efficiently.
- Register your mortgage brokerage and open a business bank account
Horray! You’ve passed your NMLS test! Now it’s time to register your mortgage brokerage business. Registration requirements vary from state to state to make sure you have accurate information. At this point, you’ve probably learned more about how to register your mortgage brokerage during your pre-licensing class so you’re a step ahead with gathering relevant information.
Steps during the process of establishing your brokerage as a legal business include establishing a business name, registering your business to federal, state, and local agencies, getting your federal and state tax ID numbers, designating a location, securing your EIN or employer identification number, and selecting a business structure like an LLC or C or S corporation. The most common business structures chosen by new mortgage brokers are sole proprietorship, partnership, and a limited liability company but you will want to put in the research to ensure you pick the business structure that works best for you.
Next, take your business documents and open a business bank account.
- Get a surety bond
In order to meet your state’s mortgage broker license requirements, you will need to get a surety bond. Brokers in all states need a surety bond, although the value needed can differ. For instance, brokers in CO need $25,000 bonds while TX brokers need $50,000. NMLS has a bond map you can check for your state’s specific amount. Some have a flat rate for all brokers, while others scale your bond cost depending on your annual loan volume. If you have good credit standing, you can expect a bond premium between 0.75% to 3%.
- Request broker applications and get signed up with at least three Wholesale Lenders
Almost there! Before you start taking loan applications, you’ll need to partner with lenders who provide products and programs that fit your needs and the offerings you choose to provide to your borrowers. As a mortgage broker, there are many lenders to choose from, and you will have their resources to tap into for support. This gives you greater flexibility, more solutions for your borrowers, and access to quicker turn times.
8. Find the right tools
There are a number of tools to help you run a successful mortgage business. For example, a business website and domain, email service, CRM, email marketing service, mortgage pricing engine, etc. It’s best to start with the minimum and build your way up. Do some research to see if free options are available.
As an originator, however, you will need to choose your Credit Reporting Company (CRC) and Loan Origination Software (LOS) to start.
9. There’s more: compliance and insurance
Most mortgage brokers starting out will set up their own quality control and procedures, and manage their own compliance process. If you need help, you can always hire someone later. For now, don’t forget to develop and implement a Compliance Management System (CMS).
Next, insurance. As a new business owner, you should contact your insurance agent to make sure you’re covered.
10. Use compliant marketing and find your first clients
It’s time to network, market, and build your business! Industry relationships like those with realtors are often the best way to get off the ground. Referrals are king in the industry. You can also use social media and digital or print ads to get the word out to potential customers.
Remember to make sure your social media posts, advertising and other marketing materials are in compliance with TILA, RESPA, UDAAP, the MAP rule, and SAFE. There are regulatory and reputational risks involved with marketing, especially in mortgage. Industry associations such as the National Association of Mortgage Brokers (NAMB) or Mortgage Bankers Association (MBA) may provide educational resources to help you in this area. Additionally, some lenders provide compliance-approved marketing materials that brokers can use.
11. Continue your training
You thought the classes were over? Nope. If you want to be a successful mortgage broker, learning is an ongoing process. Training and education don’t end. You will find many online and in-person classes to improve your industry knowledge and stay on top of market trends. Your state will also require a certain number of required annual training hours. You also need to renew your NMLS license annually and pay the renewal fee.
I hope this guide helped give you all the information you need to become a mortgage broker, get your license, and stay in compliance. Being a mortgage broker is a fast-paced, challenging, and rewarding career. I wish you the best on your journey to becoming an independent broker!