How to Become a Mortgage Broker: Step-by-step Instructions and Infographic

Published: Nov 21, 2017
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Mortgage brokers have a vital role in the real estate industry. If you’re considering launching a brokerage, you have plenty of reasons to be optimistic about your endeavor. With growingly positive economic signs out there, mortgage brokering is once again a much-needed occupation with promising prospects.

Besides the market demand, there is a solid financial impetus for starting a mortgage brokering company. In the end of 2017, the average yearly income of a mortgage broker is more than $57,000, but some brokers earn up to $137,700 per year. The profession is also a truly rewarding one, as you can help buyers make the right home or corporate building purchase.

The most elaborate step of becoming a mortgage broker is obtaining a license in the state you would like to operate. All licensing, however, takes place through the Nationwide Mortgage Licensing System (NMLS). This requires meeting a number of legal criteria, which guarantee your suitability for the job. Most notably, in most states you have to obtain a mortgage broker bond.

Before we delve in the step-by-step process of how to become a mortgage broker, let’s review the crucial position that brokers take in the field.  

What does a mortgage broker do?

Mortgage brokers are an essential element in the real estate industry processes, serving as the connecting point between buyers and lending institutions. Homebuyers and commercial clients seek brokers’ help, so that they can get access to the best loan options currently available on the market. You can see the benefits that buyers get when working with a mortgage broker in our infographic.

The gist of a mortgage broker’s work is staying informed about loan products, so researching is one of the main activities you need to undertake. Brokers also have to possess a good understanding of relevant laws and legal procedures, as well as economics and accounting.

That’s how you can provide thorough, accurate, and useful advice to your customers on loan options, qualification criteria, loan terms, and interest rates. In this way, you can save buyers a lot of time, offer preferential rates, and answer all their questions. The typical fees brokers charge either lenders or clients are between 1%-2% of the arranged loan amount.

How can you start your career as the crucial middleman in the lending business?

How to start your mortgage brokerage

1. Undergo the pre-licensing mortgage broker training

In order to become a mortgage broker, you need to have at least a high school diploma, or appropriate GED certification. If you have a college or university degree in economics, business or finance, this will surely give you a great start in brokering. However, it is not obligatory.

If you’d like to enrich your knowledge, you can take additional courses with the National Association of Mortgage Brokers. The certifications offered are Certified Residential Mortgage Specialist, Certified Mortgage Consultant, and Advanced Mortgage Consultant.

It’s also recommended to gain three to five years of experience at an established mortgage company before you start your independent business. This will allow you to gather invaluable knowledge and experience that you need to succeed on your own. It will also enable you to develop a large professional network of lenders and buyers, which you’ll need later on.

Тo start your licensing as a broker via the NMLS, you need to undergo a mandatory training course. It consists of 20 hours of pre-licensing education:

  • three hours of federal law
  • three hours of ethics
  • two hours of non-traditional mortgage lending, and
  • 12 hours of electives

A number of reputable mortgage broker schools offer the necessary training, as well as additional education for aspiring brokers who want to expand their all-round knowledge base.

2. Pass the SAFE Mortgage Loan Originator Test

After completing your pre-licensing education, you need to successfully sit the SAFE Mortgage Loan Originator Test, which was set as a requirement with the 2008 SAFE Act. For most applicants, the test consists of two parts: national and state.  

The national part is the same for all brokers across the country. The National Test with Uniform State Content costs $110.

Some state agencies, which has not adopted the National Test with Uniform State Content, require brokers to sit an additional State Test Component. It focuses on specific topics that are of importance in the state in which you will operate. The state test part costs $69.

For both parts, your score should be above 75% to pass the test. You will be able to review your test score within 72 hours after taking the exam.

3. Register your company and business name

You need to register a business entity so that you can apply for your license as a mortgage broker. The most important step is to select the type of company you would like to operate. Your choice will depend on the number of owners and your specific business plan.

Typically, the common options are sole proprietor, partnership, limited liability company, and corporation. Once you’ve also picked a unique name for your company, you can proceed to register with your state business license authority.

Don’t forget you will also need an Employer Identification Number (EIN) from the Internal Revenue Service in case you would like to hire employees.

4. Apply for your mortgage broker license

Once you’ve prepared all prerequisites, it’s time to complete your licensing application and submit it via the NMLS platform. You can review the state licensing requirements for your location through the NMLS interactive map. You can thus find out the exact criteria that your state’s licensing body imposes.

Some authorities require applicants to be residents of the respective states, while others do not. Additionally, in some places, you will need to have a physical workplace, but in many states you can operate online without an actual office. If you don’t have to present documents for a business location, you can work remotely online, which is often a preferred choice of professionals today.

There are common requirements, which apply to brokers from all states, such as submitting your financial statements via the NMLS website. They also include submitting proof that you meet the required professional standards:

  • Provide fingerprints for FBI criminal background check
  • Take the pre-licensing education
  • Complete the SAFE test
  • Authorize a credit report via the NMLS system

There are a number of state-specific requirements that you have to meet. In most states, for example, mortgage brokers have to post a surety bond. You need to thoroughly review your state’s criteria, so that you ensure your application is complete. The licensing fees also vary from state to state, but you can expect to pay between $1,000 and $2,000 for a yearly license.

5. Obtain a mortgage broker bond

The majority of mortgage brokers across the U.S. have to provide a broker bond during their licensing. Surety bonds function as an additional security for the state and brokers’ customers. They guarantee that mortgage professionals will adhere to the laws that govern their trade.

The bond amount is set by the relevant state authorities. For some states, the amount is fixed, and all brokers have to obtain the same bond. In other cases, the bond amounts are determined on the basis of brokers’ yearly loan volume. For example, Texas mortgage brokers need a $50,000 bond, while in California, the required amount is $20,000. In Iowa, brokers have to obtain a $100,000 bond. You can find out the exact bond requirement for your state in our mortgage broker bond’s page map.

Your surety bond price is set after your surety examines your personal and business finances. It is a small percentage of the bond amount you are required to post.

If your financial situation is stable, you can expect a bond premium in the range of 1%-3%. This means that if you have to obtain a $50,000 bond, you can pay as little as $500 to $1,500. If you have problematic finances, the bond rates are usually between 5% and 10% of the bond amount.   

6. Develop a network of lenders and buyers

One of the essential steps that you need to undertake after you obtain your state license is to work hard on developing your professional connections. First and foremost, you need to set your relationships with lending institutions, as well as with real estate agents. Attend industry events and seek contacts at key loan providers, so that you can enrich your portfolio. That’s how you will be able to present the widest possible range of loan products at the most competitive rates.

The variety and pricing of your offers are at the heart of your business, as their quality will attract your pool of buyers. However, once you have a couple of clients, it’s important how you communicate with them, so that you manage to retain them. They are also your source of future leads, as they can recommend your business if satisfied with your services.

7. Choose a software solution for your brokerage

For your successful day-to-day operation, you will also need to use a solid mortgage brokering software solution. Software programs can make your processes much easier and smoother. They can help you organize and execute your customer communication, connect you with other mortgage professionals, as well as provide you with access to lending institutions’ programs.

Some applications also can assist your marketing efforts and customer support, and give you a detailed overview of your activities through in-depth analytics.

8. Take continuing education classes

Even though you are licensed, you may still need to take yearly continuing education classes. You have to complete eight hours of training, so that you can keep and renew your licensing.

The required classes include three hours of federal law, two hours of ethics, two hours of non-traditional mortgage lending, and one elective hour. By completing these classes, you can stay up-to-date with legal and professional standards.

Start your mortgage broker business

Equipped with a thorough knowledge about the licensing process that you have to undergo, as well as the basics of establishing your brokerage, you can make the first step to launching your business.

Still have questions? Don’t hesitate to contact us at 877.514.5146.

Infographic

Take a look at the infographic we created based on the 8 steps outlined above. Feel free to leave us a comment, share it on social media or even put it on your website using the embed code below it.

How to Become a Mortgage Broker Infographic

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.