There is an old saying that: “First of all, read out the rules of the game and then rule that game.”
At here this quote means that before starting any company, business etc, First of all do research about that company that what does that company do and what are the rules do that company follows and after doing a keen research, start that company with full zeal and zest.
So before talking about the points to start a mortgage company, first talk about what is a mortgage company? and how that works.
Definition of a Mortgage Company
“So a Mortgage Company is nothing but a business having the principal or basic activity of principal servicing or providing mortgages loans.”
Some people think about that what is the meaning of mortgage? so for them, the mortgage is nothing but a loan which the borrower consumes or uses to maintain or to purchase a home, for purchasing a commercial or residential property, for starting a real estate, or for starting a company and also signs on an agreement to pay back in a specified time which is stated in that agreement, usually paying back the regular payments in a series.
A mortgage company would maybe a trusted company, credit union, chartered bank, or other financial companies or institutions for providing the mortgages loans. A mortgage company would maybe just the originator of a loan. Moreover, a mortgage company doesn’t work individually, but mostly mortgage company works on purchasing the mortgages or loans from the original mortgage lender and gives services of mortgage loans.
A mortgage is like a specific type of debt that is taken from the people buying real estate. A mortgage company works as a middle man in between the individuals, and the banks secure mortgages for their customers or clients. In a very little time and from a lot of effort, you will become a loan originator and you can start helping the people who want to purchase property or wants to start up any type of company.
Steps to Start a Mortgage Company
Since the housing crashed in 2008, the mortgage industry has seen many changes. At that time, many people were assuming that it would be the end of mortgage industries and to some extent, it was really the death of small mortgage companies, but these were just assumptions for the best mortgage brokers to adapt with better impeccable service and product. Some people think that it’s very easy to open a mortgage company because they think that they only need a mortgage license to start a mortgage company but starting your own mortgage company may requires more than just getting your own mortgage license. You must need to complete all the required documentation through the Nationwide Mortgage Licensing System (NMLS).
The steps to starting up a successful Mortgage Company are described as follows:
1. Making a Business Plan:
If you are or starting a company or going into business independently, you will absolutely need a plan to explain your goals to the employees or potential investors and to help establish your structure. The crucial first step in creating any kind of company, whether it is a mortgage company or a real estate company, you always need a solid and keen business plan.
Explain the market that you firmly want to reach and how you have planned to target them. As everyone knows that the mortgage business is always pretty much crowded with a lot of competitors and to compete with them all, creating a fantastic business plan is very essential for you. Your business plan should describe each and every detail to start up a mortgage company. A business plan is usually about 16 to 20 pages long.
While writing a helpful business plan, you need to consider many questions, Such as, Will you operate the business online or have a mortar- and a brick location? How will you identify lending partners, If you are acting as a negotiator? Will you specialize in commercial or residential mortgages? To attract potential customers, How will you market your business? Do you act as an intermediary or negotiator between customers and third-party lenders or you will plan on originating loans? What is your anticipated transaction volume? Will you deal with complex mortgages or non-traditional borrowers?, etc
Moreover, your business plan should include financial projections, known as proforma financial statements, as well as a realistic timeline and budget. Mortgage companies generate their revenue by charging partnering banks a fee, by borrowers a fee, or by the combination of both of these.
The business plan that includes these essential elements will be necessary for the operational needs and for the secure and anticipate financing for the startup costs of your company.
2. Establish your Business Entity:
It’s very important for you to establish your business entity before registering for Nationwide Mortgage Licensing System(NMLS) . By filing with your state is the next step to formally establishing your business entity. With your preferred business name, go to the secretary of state.
To confirm that you have chosen a unique name, search out the business listing because business names cannot compete. After completing the registration go to the IRS website to get the tax identification number.
The legal structure that you would choose for your company has income tax consequences. That’s why for establishing the proper legal structure hiring an attorney is highly recommended for your new business.
Most of the lending companies and mortgage banks are legally formed as limited liability corporations (LLCs). Under your preferred business name, you will need to register in your state. A state tax identification number will be assigned to you.
After completing the registration of the state, you will get an Employer Identification Number (EIN) for your new business after getting registered to the Internal Revenue Service. After it, proceed to the NMLS application process.
3. Get Attested by the NMLS:
The NMLS or National Mortgage Licensing System is the agency that registers the companies and individuals that provide lending services and mortgage banks. It is monitored at the state level and moreover, it is a federal requirement. For fees in your state check with your state NMLS regulatory department.
You will need to file the Form MU1. Form MU1 covers the basic detail about your financial history and your company. For all new entities, This is the required application.
As an individual, if you are already If you are already licensed then make sure that with an institution regulated federally, such as a bank, you are not already licensed.
It is required for you to pass through a credit and background check and within 48 hours, you would know the results of your credit and background check, as it is the part of the registration process. There are many different requirements of the designation, such as if you have this mortgage license designation, then it is necessary for you to complete the paperwork or testing.
Moreover, if you are not individually licensed, then for the state regulations of the mortgage lending industry and for demonstrating your knowledge of federal, it is essential for you to take the NMLS exam.
NMLS exam is not a single test but is it is two exams because it is already described that NMLS covers both state and federal regulations. You would have about 4.5 hours to complete both exams and you don’t worry about the exams because these exams are not typically taken on the same day and these tests are very easy.
You will need a calculator, pencil, and other items depending on your requirements of the state. To pass the exam, you need to make a 75% score. Moreover, you would receive the results for the tests immediately after completing both exams.
4. Get the State License:
Once you are certified or attested by the National Mortgage Licensing System(NMLS), after that you would need to get the license from the state where you want to work in. Each state have different office or agencies so you need to contact them, which will license the lenders and mortgage brokers. Like California, some states which have multiple offices where you can register.
Usually, in some cases, you would need to register with multiple state agencies. From the NMLS, some states pull down partial information. Like the NMLS registration, these licenses or the states will need you to file your surety bond, credit report, business plan, background check, insurance, proof of citizenship, surety bond and other financial details regarding your business as it is the part of the registration process.
In addition, to obtain and maintain licensure, some states have educational programs or mandatory training.
5. Maintain your license:
After getting the license you it is necessary for you to maintain your license. For this maintanace, you would need to renew your broker license annually. Other fees and requirements vary by state, though you can do many of them through the NLMS. Make sure that you can access to your online account through NLMS, because this would make the process quicker.
After making the request, the state agency will review your request and will notify you if they find any kind of issue. At this point, you are free from any kind of responsibility because for your renewal application, your state is responsible.
On the behalf of their individual licensees, a business can request licenses. Before starting your own, If you are working for another company, then check your company to see that if they are doing it for you.
6. Hire additional qualified Staff:
As your mortgage company grows you would found the need to hire the additional and qualified staff in your company and that staff includes loan processors or loan officers and additional brokers. You have to determine this by yourself that how many mortgage brokers you need to hire in your company and what would be their pay structure.
Working on commission or a salary-plus-commission schedule is very common in most mortgage brokers. You have to take it into your consideration that you would need to hire payroll services and human resource with the bigger staff members.
As you will expand your company in addition to hire the additional staff, you must have to make sure the tracking of your business and the tax information of the employees. Moreover, make sure that your workers fill out the both W-4 Form (for taxation) and the I-9 Form (for employment eligibility). For easy reference, keep all your employees’ tax forms filed. Choose a program that will motivates and attracts the talent of your employees.
7. Build and Market your business Network:
As you have passed through all the above steps, then now you, after starting up your mortgage company you will want to make the people know about your company to make your company more successful. So for that, you would have to build and market the network of your mortgage company. Entrepreneurs who got successful had adapted the building and marketing of their business network offline and online.
Starting a mortgage company is a very personal business that thrives only by interactions. You have to know that most of your revenue or income will come from the commissions so you will need to persistently find and add up new customers. All the successful Entrepreneurs quote that the local networks are the key to getting the business partner and customer referrals. Referrals, first from the family and friends, then from the other customers, are very important to bringing in the new business.
Through your Commerce’s local Chamber, you can find opportunities for in-person networking. Professional associations, like the National Association of Mortgage Brokers (NAMB), offer excellent networking opportunities and educational resources. In addition to this, you should also have to invest in a professional website that is optimized for search engine visibility which will increase your networking or marketing up to 30%.
Establish the company’s website, business cards, and phone lines. To develop powerful partnerships begin networking with experienced local real estate agents. Use social media platforms such as Facebook, Reddit, Linkedin, Twitter, Instagram, etc., to spread your business to the world.