How to Start a Mortgage Brokerage

Almost everyone who purchases a home gets a mortgage loan. Mortgage brokers facilitate these loans by serving as a go-between and negotiating favorable rates for the buyer. 

The US loan brokers industry has fluctuated during the last decade but has still expanded more than 20% in that period, and is set for further growth in the years ahead. If you have experience in mortgages or want to learn, you could start your own brokerage and make a good living while providing an invaluable service for new homeowners. 

But in addition to mortgage knowledge, you’ll need to learn what it takes to start a business. Lucky for you, this step-by-step guide is loaded with all the information you need to start a successful mortgage brokerage. 

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a mortgage brokerage has pros and cons to consider before deciding if it’s right for you. 

Mortgage brokerage industry trends

Industry size and growth

• Industry size and past growth – The US loan brokers industry is worth $11.7 billion in 2022 after expanding 21% in the last decade.((https://www.ibisworld.com/industry-statistics/market-size/loan-brokers-united-states/))
• Growth forecast – The US loan brokers industry is projected to grow modestly over the next five years.
• Number of businesses – In 2022, 12,418 loan brokers businesses are operating in the US((https://www.ibisworld.com/industry-statistics/number-of-businesses/loan-brokers-united-states/))
• Number of people employed – In 2022, the US loan brokers industry employs 47,808 people.((https://www.ibisworld.com/industry-statistics/employment/loan-brokers-united-states/))

Trends and challenges

Trends in the mortgage brokerage industry include:

• Technology is streamlining the mortgage loan process, helping people get into their new homes faster and simplifying the work of mortgage brokers.
• Non-bank lenders are capturing more of the mortgage market, so mortgage brokers need to develop relationships with those lenders.

Challenges in the mortgage brokerage industry include:

• Inflation is causing interest rates to rise, which could negatively impact the mortgage brokerage industry.
• More and more people are turning to online lenders for their mortgage needs, skipping the mortgage brokerages. 

Demand hotspots

• Most popular states – The most popular states for loan officers are Maryland, New York, and North Carolina.((https://www.zippia.com/loan-officer-jobs/best-states/))
• Least popular states – The least popular states for loan officers are Utah, California, and Nebraska.

What kind of people work in mortgage brokerages?

• Gender – 44.7% of loan officers are female, while 55.3% are male.((https://www.zippia.com/loan-officer-jobs/demographics/))
• Average level of education – The average loan officer has a bachelor’s degree.
• Average age – The average loan officer in the US is 44.9 years old.

How much does it cost to start a mortgage brokerage business?

Startup costs for a mortgage brokerage if you run your business from home are about $3,000. Costs include a computer and a marketing budget. If you start your brokerage from an office, costs will be about $10,000. 

Visit the resource center of the Nationwide Mortgage License System for help with education and licensing. 

How much can you earn from a mortgage brokerage business?

Mortgage brokers are paid by the lender a commission of 1% to 2% of the loan amount, for an average of 1.5%. The average mortgage loan size in the United States is $450,000. Your profit margin if you’re working from home should be high, around 90%.

In your first year or two, you could work from home and close one mortgage loan per month, bringing in $81,000 in annual revenue. This would mean $73,000 in profit, assuming that 90% margin. 

As your business gains traction and you get referrals, sales could climb to five loans a month. At this stage, you’d rent a commercial space and hire staff, reducing your margin to around 40%. With annual revenue of $405,000, you’d make a tidy profit of $162,000.

What barriers to entry are there?

There are a few barriers to entry for a mortgage brokerage. Your biggest challenges will be:

• The education and licensing requirements to be a mortgage broker
• Drawing clients from other brokers, banks, and online lenders

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Step 2: Hone Your Idea

Now that you know what’s involved in starting a mortgage brokerage, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research mortgage brokerages in your area to examine their products and services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing an independent mortgage broker that works with a certain mortgage lender or financial institution. 

You might consider targeting a niche market by specializing in a certain aspect of your industry, such as residential mortgage loans or investment property mortgage loans.

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products or services

You’ll need to develop relationships with multiple mortgage lenders and financial institutions so that you can offer their loan products. They will set you up on their system so that you can handle the mortgage application and processing. You can determine if you want to do residential mortgage loans, investment property loans, or both. 

How much should you charge for mortgage loans?

The lender generally determines the fee you’ll be paid and it should be between 1% and 2% of the loan amount. You can also charge an application fee for additional revenue. Your profit margin when you’re working from home should be about 90%. 

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be anyone buying a home or investment property. You should spread out your marketing to include sites like TikTok, Instagram, Facebook, and LinkedIn. 

A big source of your business should be real estate agents, so you should try to form relationships with as many as possible. You can connect with them on LinkedIn or find them on Google and Yelp and call them directly. 

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Mortgage Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “mortgage broker” or “mortgage loans”, boosts SEO
• Name should allow for expansion, for ex: “Alliance Mortgage Group” over “Rural Housing Mortgage Company” or “First-Time Home Buyers Mortgage Co.”
• Avoid location-based names that might hinder future expansion
• Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Mortgage Brokerage Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

• Executive Summary: A brief summary of the mortgage brokerage business plan, highlighting its key points and objectives.
• Business Overview: An introduction to the mortgage brokerage, including its mission, vision, and the problem it aims to solve.
• Product and Services: A description of the mortgage brokerage’s services, such as loan origination, refinancing, and mortgage advice.
• Market Analysis: An examination of the mortgage market, including target customers, demographics, and trends.
• Competitive Analysis: Evaluation of the competition in the mortgage brokerage industry, identifying strengths and weaknesses.
• Sales and Marketing: Strategies for attracting and retaining customers, including advertising, networking, and lead generation.
• Management Team: Profiles of the key individuals running the mortgage brokerage, highlighting their qualifications and roles.
• Operations Plan: An outline of day-to-day activities, systems, and processes required to run the business efficiently.
• Financial Plan: Projections for revenue, expenses, and profits, including startup costs and funding sources.
• Appendix: Supplementary materials such as detailed financial statements, resumes, or legal documents that support the business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to mortgage brokerages. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your mortgage brokerage will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

Form Your LLC

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Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a mortgage brokerage business. 

Step 8: Apply for Mortgage Brokerage Business Licenses and Permits

Starting a mortgage brokerage business requires obtaining a number of licenses and permits from local, state, and federal governments.

You’ll need a mortgage broker’s license. You can find a host of resources to help you with education and licensing through the Nationwide Mortgage License System at their NMLS resource center. You can also check with your state for requirements. 

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your mortgage brokerage business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as Floify, meridianlink, or ARIVE, to manage your loan origination, rate quotes, and lender relationships. 

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Embarking on a journey in the mortgage brokerage business is an exciting venture, and a solid marketing strategy is key to success. Beyond the essentials like creating a website and networking, here are practical tips to boost your mortgage brokerage:

1. Leverage Social Proof: Encourage satisfied clients to share testimonials and positive experiences on online platforms and social media. Real stories build trust and credibility.
2. Partnerships with Real Estate Agents: Forge strong partnerships with local real estate agents. A mutually beneficial relationship can lead to referrals and a steady stream of potential clients.
3. Educational Workshops: Host workshops or webinars to educate potential homebuyers on the mortgage process. Establish yourself as an expert and build relationships with attendees.
4. Local Community Engagement: Sponsor local events, sports teams, or community projects. This not only fosters goodwill but also increases your visibility within the community.
5. Content Marketing: Produce valuable content, such as blog posts or videos, that addresses common mortgage-related questions and concerns. This positions your brokerage as an authoritative resource.
6. Referral Programs: Implement a referral program that rewards clients and partners who refer business to your brokerage. Incentives can include discounts, gift cards, or other perks.
7. Mobile Optimization: Ensure your online presence is mobile-friendly. Many potential clients search for mortgage information on their smartphones, and a seamless mobile experience is crucial.
8. Targeted Online Advertising: Utilize online advertising platforms to target specific demographics in your local area. Platforms like Facebook and Google Ads allow you to narrow down your audience effectively.
9. Niche Marketing: Identify and target specific niche markets, such as first-time homebuyers or retirees. Tailor your marketing messages to address their unique needs and concerns.
10. Stay Informed on Industry Trends: Demonstrate your industry expertise by staying informed about the latest mortgage trends and regulations. Share relevant updates with your audience to showcase your knowledge.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your mortgage brokerage meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your mortgage brokerage business could be:

• The best mortgage loan rates in town, guaranteed
• Investment property loans – quick turnaround time
• Easy, affordable mortgage loan to smooth your home buying process  

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a mortgage brokerage business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in mortgage brokerages for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in mortgage brokerages. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a mortgage brokerage business include:

• Loan originators – assist clients with the mortgage process
• Branch Manager – scheduling, accounting
• Marketing Lead – SEO strategies, social media

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Mortgage Brokerage – Start Making Money!

What better way to make a living – helping people with the biggest investment of their lives, and making their dreams come true. Homeownership is a part of the American dream, and you could make that dream come true, time and time again, with your own mortgage brokerage. If you’re willing to work hard and have a passion for helping people, you could build a thriving mortgage operation that could even go national — now that’s a lot of dreams! 

Now that your business homework is out of the way, it’s time to get to work and launch your successful mortgage brokerage.