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

Published: Nov 13, 2020
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Mortgage brokers have a vital role in the real estate industry. 

They help buyers make home and corporate building purchases, connecting them to the right funding options. This makes mortgage brokering a much-needed occupation with promising prospects for professional development and financial success.

How to become a mortgage broker, then? 

The most elaborate step is obtaining a license in the state you would like to operate. It requires meeting a set of requirements, which guarantee your suitability for the job. The criteria you need to fulfill are set by your state authorities, but the procedure is handled through the Nationwide Multistate Licensing System and Registry (NMLS). 

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

 

What does a mortgage broker do?

Mortgage brokers serve as the connecting point between buyers and lending institutions. This makes them an essential player in the real estate industry processes.

Homebuyers and commercial clients seek brokers’ help to access the best loan options 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. Researching is thus one of the main activities you need to undertake. 

You also need a good understanding of the legal framework, economics, and accounting. That’s how you can provide thorough and accurate advice to your customers on loan options, qualification criteria, loan terms, and interest rates. 

The typical fees brokers charge either lenders or clients are between 1%-2% of the arranged loan amount. This means that you can reach a 6-digit income per year with the right approach to working with your customers. 

How to start a mortgage brokerage then?

1. Undergo the pre-licensing mortgage broker training

The first step to becoming a mortgage broker is to meet the education requirements.

You need to have at least a high school diploma or appropriate GED certification. A college or university degree in economics, business or finance is not obligatory, but it will surely give you a great start in brokering.

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-licensure education:

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

Several good mortgage broker schools offer the required training. They also provide additional education for aspiring brokers who want to expand their all-round knowledge base.

If you’d like to further enrich your skills beyond the mortgage broker license courses, 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 recommended to gain three to five years of experience at an established mortgage company before you start your independent business. That’s how you can gather first-hand knowledge and experience that you need to succeed on your own. You can also develop a professional network of lenders and buyers, which you’ll need later on.

2. Pass the SAFE Mortgage Loan Originator Test

After completing your pre-licensing education, you need to pass the SAFE Mortgage Loan Originator Test. It was established as a licensing requirement with the 2008 SAFE Act. 

Most applicants have to pass the National Test with Uniform State Content. It is the same for all brokers across the country. Its price is $110.

Some state agencies which have 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. 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 in your state to apply for a mortgage broker license. 

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. The common options are a sole proprietor, partnership, limited liability company, and corporation. 

Once you’ve also picked a unique trade name for your company, you also have to register it with your state business license authority.

You need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service in case you want to hire employees.

4. Meet the mortgage broker license requirements

Once you’ve prepared all documents, it’s time to complete your licensing application. You have to submit it via the NMLS platform. 

You can review the exact licensing requirements for your state through the NMLS interactive map

There are common requirements that brokers from all states have to fulfill. They include: 

  • Submitting your financial statements
  • Providing fingerprints for FBI criminal background check
  • Taking the pre-licensing education
  • Completing the SAFE test
  • Authorizing a credit report via the NMLS system

There are several state-specific requirements that you have to meet as well. In most states, for example, mortgage brokers have to post a surety bond

In some states, you will need to have a physical business location. In many others, you can operate online without an actual office. The latter is often a preferred choice of mortgage professionals today.

The licensing fees vary from state to state. In general, you can expect to pay between $1,000 and $2,000 for a yearly license.

5. Obtain a mortgage broker bond

Getting a mortgage broker bond is one of the common licensing requirements for brokers across the US. 

The surety bond functions as additional security for the state and your customers. It guarantees that you will follow the laws that govern your trade.

The licensing authorities in your state set the mortgage broker surety bond amount that you have to provide. In some states, the amount is the same for all applicants. In others, it depends on your yearly loan volume. 

For example, Texas mortgage brokers need a $50,000 bond, while in California, the required amount is $20,000. You can find out the exact bond requirement in your state by consulting our mortgage broker bond’s map.

Your surety determines your surety bond cost after examining your personal and business finances. The price is a small percentage of the required amount. 

If your financial profile is stable, you can expect a bond premium in the range of 0.75%-3%. This means that if you have to obtain a $50,000 bond, you can pay as little as $375 to $1,500. 

Want to see the exact cost of your mortgage broker bond? Fill in the short form below! 

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6. Develop a network of lenders and buyers

Once you obtain your state license, you have to develop your professional connections. This is an essential element of how to become a mortgage broker. 

First and foremost, you need to create relationships with lending institutions, as well as with real estate agents. You can attend industry events and seek contacts at key loan providers to enrich your portfolio.

By doing this, you will be able to present a wider range of loan products at the most competitive rates. The variety and pricing of your offers are at the heart of your business. It’s their quality and diversity that will attract your pool of buyers. 

It’s important how your customer relations as well. Happy customers are a great source of word-of-mouth leads.

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. It can make your processes much easier and smoother. 

Software programs help you organize and execute your customer communication and connect you with other mortgage professionals. They can provide you with access to lending institutions’ programs as well.

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

8. Take continuing education courses

Every time you renew your mortgage broker license, you have to take yearly continuing education courses. You need to complete eight hours of training.

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 them, you can stay up-to-date with legal and professional standards.

Start your mortgage broker business

Equipped with thorough knowledge about the licensing process and the basics of establishing your brokerage, you can launch your business with confidence. Still have questions? Don’t hesitate to contact us at 877.514.5146.

Infographic

Here’s an infographic with the 8 steps on how to become a mortgage broker in 2021. Feel free to leave us a comment, share it on social media, and embed it on your website.
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.

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