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How To Start A Mortgage Company

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Develop Your Mortgage Company Business Plan

Mortgages : How to Start a Mortgage Company

One of the most important steps in starting a mortgage company is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

  • Executive Summary this section should summarize your entire business plan so readers can quickly understand the key details of your mortgage company.
  • Company Overview this section tells the reader about the history of your mortgage company and what type of mortgage company you operate. For example, are you a commercial bank, a thrift bank, or a credit union?
  • Industry Analysis here you will document key information about the mortgage industry. Conduct market research and document how big the industry is and what trends are affecting it.
  • Customer Analysis in this section, you will document who your ideal or target market are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
  • Competitive Analysis here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
  • your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
  • Choose A Suitable Location For Your Business

    Determining the location for your mortgage lending business is one of the critical decisions you have to make especially when you are not starting from your home. There are a lot of businesses and activities you can accomplished online today without actually having a physical office right away, but you should have a designated location or space in which you can work. Without a physical office where you can attend to your clients, then you should be open to meeting clients in their homes or other agreed-upon locations.

    When deciding on a location, consider renting one with related businesses that can serve as a source to promote your mortgage business. For example, choosing an office complex with a real estate agent and an appraisal company very close may help drive targeted customers to your firm.

    What Are The Most Important Considerations When Starting A Mortgage Company

    The industry itself

    Mortgage lending is generally a recession-proof business. However, the mortgage industry has never been the same since the housing market crashed in 2008. At the time, many people assumed the industry was coming to an end, but in reality, it meant the end for many small mortgage brokerage businesses.

    More importantly, it leads to existing mortgage brokers offering better products and impeccable services. Over the last 10 years, the industry has seen a sharp introduction of new products, such as Alt-A mortgages, subprime mortgages, and NINJA loans. Lending standards have also undergone several changes through the years especially in the area of home loans.

    It remains to be seen what the long-term impact of the COVID-19 pandemic will be on the mortgage industry. But if short-term impacts like near-zero interest rates, economic uncertainty, and a budding sellers market are anything to go by, you best have a proper strategy in place.

    For many years, the boomer generation was the primary target market for mortgage lenders and brokers. Now that more and more boomers are reaching retirement age, Gen X and millennials are becoming the primary focus of mortgage companies.

    Every new generation brings with them a unique set of demands and expectations, which influences how a company would market its services to them. Its therefore important to understand the demographics and psychographics surrounding your current target market.

    Your niche

    Competition

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    Conduct Market Research And Feasibility Studies

    • Demographics and Psychographics

    Before starting a mortgage lending business, you need to understand who your potential customers will be, why they need mortgage loans and how you intend to get it for them. Understanding the demographics and Psychographics surrounding your proposed business is an understanding that will go a long way to determine how successful you will be.

    Therefore, those who will need the services of mortgage lending businesses include

    • Workers
    • Brokering and dealing products
    The Level of Competition in the Industry

    Firms in the Mortgage lending industry lend money to prospective homeowners through a mortgage, using the home as collateral others also specialize in lending to farms or businesses, also with real estate as collateral. The competition and demand in the mortgage lending industry is driven by interest rates, consumer confidence, and capital spending by businesses.

    The profitability of individual companies lies on their ability to originate, service, and get loans, as well as to collect fees and interest on credit and other financing products. Bigger companies in this industry have economies of scale in securing access to capital. Smaller and growing companies can compete effectively by specializing. The US industry is indeed highly concentrated and the top 50 companies in the industry account for about 85% of its revenues.

    How Much Do Banks Pay Mortgage Brokers

    How to Start a Mortgage Company: 15 Steps (with Pictures)

    On mortgages, brokers are paid commission upfront by the lender when the loan is taken out. They can also earn upfront and trail commission, where they get some of the money in monthly payments over the term of the loan. Upfront commissions on mortgages can be up to 0.85% and sometimes more of the loan value.

    Recommended Reading: What Is The Hiro Mortgage Program

    Get The Required Business Licenses And Permits

    There are a few licenses and permits you may need to start a mortgage company, depending on your location. For example, you may need a license to offer mortgage services, as well as a license to operate as a mortgage lender. You may also need to register with the state financial regulator.

    Contact your states banking or financial regulator for more information on what licenses and permits are required in your area.

    Starting A Mortgage Brokerage

    There are a number of steps to starting a mortgage brokerage. You also have legal considerations to keep track of.

    However, this type of business is inexpensive. A brokerage only has to pay for labor, office space, and possibly insurance. They keep a lot of their profits.

    This business is rewarding in two ways. Mortgage brokers can potentially have high earnings. They also help people get the best loans for them. Imagine helping a family buy their dream home.

    Keep the above considerations in mind if you decide to become a mortgage broker, and watch your business thrive!

    Recommended Reading: What Are The Qualifications For A Mortgage Loan

    Meet Your States Mortgage Broker License Requirements And Get A Surety Bond

    Now youll need a business license to operate in your state. The requirements and licensing fees vary per state but you can expect to pay around $1,000 to $2,000 for your initial application and annual license renewal.

    Below are the common requirements that brokers from all states must provide. You have to submit all of them through the NMLS platform.

    • Your financial statements

    Choose The Name For Your Mortgage Company

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    The first step to starting a mortgage company is to choose your business name.

    This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your mortgage company:

  • Make sure the name is available. Check your desired name against trademark databases and your states list of registered business names to see if its available. Also check to see if a suitable domain name is available.
  • Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
  • Think about marketing. Come up with a name that reflects the desired brand and/or focus of your mortgage company.
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    Obtain Insurance For Your Business

    All companies need commercial liability insurance. If you plan to have a brick-and-mortar business, you will need a general liability policy that includes building and property protection. You will also need professional liability insurance and a surety bond to protect you against any losses resulting from an inability to meet client obligations. The bond amount varies by state.

    A commercial insurance agent can advise you on the appropriate policies and coverage amounts. It is important to talk with an insurance agent who is familiar with commercial polices in your state.

    Step : Open A Business Bank Account & Credit Card

    Using dedicated business banking and credit accounts is essential for personal asset protection.

    When your personal and business accounts are mixed, your personal assets are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

    Additionally, learning how to build business credit can help you get and other financing in your business’s name , better interest rates, higher lines of credit, and more.

    Open a business bank account

    Besides being a requirement when applying for business loans, opening a business bank account:

    • Makes accounting and tax filing easier.

    Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.

    Open net 30 accounts

    Net 30 accounts are used to establish and build business credit as well as increase business cash flow. With a net 30 account, businesses buy goods and repay the full balance within a 30-day term.

    NetMany net 30 credit vendors report to the major business credit bureaus . This is how businesses build business credit so they can qualify for credit cards and other lines of credit.

    Recommended: Read our best net 30 vendors, guide and start building business credit.

    Get a business credit card

    Getting a business credit card helps you:

    • Build your company’s credit history, which can be useful to raise money later on.

    Recommended: Apply for an easy approval business credit card from Divvy and build your business credit quickly.

    Also Check: How Much Take Home Pay For Mortgage

    Secure Startup Funding For Your Mortgage Company

    In developing your mortgage company business plan, you might have determined that you need to raise funding to launch your own business.

    If so, the main sources of funding for a mortgage brokerage business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a mortgage company that they believe has high potential for growth.

    Continue Your Education On Mortgage Lending

    How to Start a Mortgage Company: 15 Steps (with Pictures)

    Once you have your mortgage broker license, its your responsibility to keep up on the latest developments on mortgage lending in your area.

    To keep your license current, youll be required to take a certain number of hours of continuing education courses each year. Its similar to what accountants, doctors, and lawyers go through, and it ensures that you can do your job accurately and will give your clients the most up-to-date mortgage loan information.

    Brokering mortgages is a job that demands constant attention to the changing real estate and lending landscape.

    Also Check: Can You Get A Mortgage To Include Renovations

    Who Are Mortgage Brokers

    Not everyone is fit to work in this field. It doesnt just come down to skill, but also personality.

    A good broker, such as mortgage brokerage Clopton Capital, is precise and can stand doing a ton of research, as you would for any startup business. You have to be updated on the newest loan products, call or email lenders and contacts in the industry, and narrow your search based on what the client qualifies for.

    Mortgage brokers need to know how to read and calculate finances. They have to understand loans, mortgage loans, and the real estate industry.

    You need to be exact with numbers. Getting the math wrong would be extremely detrimental to your business.

    You should be honest with your clients and give them helpful advice. If a certain loan isnt attainable because of a low credit score, let them know. Successful brokerages build trust with their customers.

    A broker has all the appropriate licenses including pre-licensure education. They are knowledgeable about the laws on lending and other relevant laws.

    How Long Will It Take To Become An Independent Mortgage Broker

    On average, it takes 45 days to complete the requirements necessary to become a licensed independent mortgage broker also known as loan originator or loan officer. However, this may vary depending on the state youre registering in and your ability to pass the required examinations and background checks.

    Also Check: How Do You Know If You Can Get A Mortgage

    Start Your Mortgage Broker Business

    Once you have collected or prepared everything detailed in this article, you will be ready to begin your journey as a mortgage broker. Whether you wish to work by yourself, or are hoping to establish a corporation, these guidelines should give you a firm head start.

    If you have any further questions about the requirements for becoming a mortgage broker, or the process of posting a mortgage broker bond, dont hesitate to get in touch. You can contact us via our chatbot, or over the phone at 877.514.5146

    Step : Plan Your Business

    Introduction: Becoming a business loan broker and starting a business loan brokerage.

    A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

    Luckily we have done a lot of this research for you.

    What are the costs involved in opening a mortgage brokerage business?

    Costs involved in starting a mortgage brokerage business are small. Most brokerages can be started out of the home for little or no money aside from the licensure and basic legal requirements.

    What are the ongoing expenses for a mortgage brokerage business?

    Ongoing expenses for a small mortgage brokerage business are minimal. Usually, all you have to pay for is office space and labor expenses. Larger firms incur higher expenses due to higher labor, insurance, and office-related expenses.

    Who is the target market?

    Target market for this business includes businesses looking for commercial property, individuals and families looking for residential home, and investors looking for real estate or rental properties.

    How does a mortgage brokerage business make money?

    This business makes money by receiving a commission in return for bringing customers to the lender.

    How much can you charge customers?

    The fee is paid either by the borrower or the lender, and is usually between 1% and 2% of the total loan amount. Some brokerage firms also charge fees for applications or other ancillary services.

    How much profit can a mortgage brokerage business make?

    What will you name your business?

    Recommended Reading: When Does A Reverse Mortgage Make Sense

    Step : Get Business Insurance

    Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your companys financial wellbeing in the event of a covered loss.

    There are several types of insurance policies created for different types of businesses with different risks. If youre unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so its a great place to start for your business.

    Learn more about General Liability Insurance.

    Another notable insurance policy that many businesses need is Workers Compensation Insurance. If your business will have employees, its a good chance that your state will require you to carry Workers’ Compensation Coverage.

    Recommended: Learn what business insurance for your Mortgage Brokerage Business will cost.

    Choose The Legal Structure For Your Mortgage Company

    Next you need to choose a legal structure for your mortgage company and register it and your business name with the Secretary of State in each state where you operate your business.

    Below are the five most common legal structures:

    1) Sole proprietorship

    A sole proprietorship is a business entity in which the owner of the mortgage company and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

    2) Partnerships

    A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a mortgage company together. The partners share in the profits and losses of the business.

    The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

    3) Limited Liability Company

    4) C Corporation

    5) S Corporation

    Read Also: Can You Apply For A Mortgage Before Finding A House

    Take A Continuing Education Course

    Every time you renew your mortgage broker license, you must take yearly continuing education courses. These courses are eight hours long and comprise components which match your initial 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.

    Whilst these eight hours of retraining are official requirements, it is sensible to continue learning on and developing your awareness of the industry on your own initiative. Doing so will give you a competitive advantage in the industry, as it will allow you to stay up to date with practices, techniques or any changes made to the industry in real time.

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