If you’re good with numbers and desire a career in the real estate and mortgage industries, you might be interested in becoming a mortgage broker – and understanding what the role entails and what the requirements are can help you pursue this profession with greater ease.
Data from Glassdoor shows that mortgage brokers in the United States have an average annual income of at least $70,000 – higher than the national average of $54,000 in 2021, according to the Bureau of Labor Statistics (BLS).
Brokers are paid by the lender when a loan is closed, with the fee typically between 1% to 2% of the total loan amount, according to finance company Nerdwallet.
Additionally, you don’t need to have a college degree to qualify – and everyone starts on equal footing because you have to pass the same exams and meet your state’s licensing requirements.
Here are vital things that you must know from pre-licensing to getting your surety bond if you decide on becoming a mortgage broker.
Interested in becoming a mortgage loan broker? This comprehensive guide will walk you through everything you need to know to launch a successful career in the mortgage industry
What is a Mortgage Loan Broker?
A mortgage loan broker acts as an intermediary between borrowers seeking mortgage loans and the banks, credit unions and other lending institutions that offer them Rather than working directly for a bank, brokers are independent professionals who can access many different loan products from an array of lenders This allows them to shop around for the ideal loan for each client based on their financial situation and goals.
As a mortgage broker, your responsibilities typically include:
- Meeting with clients to understand their finances and goals
- Collecting documentation and completing loan applications on their behalf
- Comparing different loan options across multiple lenders to find the best rates and terms
- Advising clients on the pros and cons of each loan program
- Guiding clients through the entire loan process until closing
- Staying up-to-date on mortgage industry trends and regulations
Benefits of Working as a Mortgage Loan Broker
There are many advantages to becoming a mortgage broker rather than a traditional loan officer:
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Independence: As an independent broker, you’ll have the freedom to run your own business and be your own boss. This allows for greater flexibility and control over your schedule and income potential.
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Variety: Every client’s needs and financial situations are different, so no two days will ever look the same. You’ll get to explore a wide range of loan options instead of just what one bank provides.
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Competition: With access to lenders nationwide, you can stay competitive and find better rates for borrowers than they may find on their own. This makes you an invaluable partner in the home buying process.
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Income potential: Successful brokers can earn a very lucrative income through commissions and fees paid out on each closed loan. As you grow your business, your earning potential does too.
Step 1: Get the Required Licensing and Education
To legally work as a mortgage loan broker, you must meet certain licensing requirements which vary by state. This involves completing mortgage broker pre-licensure education, passing exams, submitting applications, and paying fees.
Pre-Licensing Education
All states require prospective brokers to complete 20+ hours of pre-licensing education approved by the Nationwide Mortgage Licensing System (NMLS). Courses cover topics like ethics, regulations, loan products, the origination process, and more. Classes are offered online and in-person through community colleges, associations like the MBA, and private providers.
Passing the SAFE Exam
After education, you must pass the NMLS’s national mortgage loan originator exam, also known as the SAFE (Secure and Fair Enforcement) test. It consists of 125 multiple choice questions on general mortgage concepts. You must also pass a state-specific portion that covers your jurisdiction’s laws.
License Application
Once you’ve passed the exams, you can submit a license application through the NMLS which includes a background check, fingerprints, and fees. Each state reviews applications individually, so approval times vary.
Step 2: Gain Mortgage Industry Experience
Though not strictly required, having experience in the mortgage sector will make it much easier to succeed as a new broker. Look for entry-level roles like:
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Loan officer: Originate mortgages directly for a bank or credit union. This is essential for building lending and underwriting knowledge.
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Loan processor/underwriter: Gain behind-the-scenes understanding of qualifying borrowers and what makes a loan application strong.
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Real estate agent: Get familiar with the home buying process and making mortgage recommendations to clients.
Any experience interacting with consumers around mortgages will help you hit the ground running as a broker. If you’re making a career change, consider taking additional coursework first to close experience gaps.
Step 3. Decide on Your Business Model
One key decision to make early on is whether you want to hang your own shingle as an independent broker or join an existing brokerage firm. Both have their advantages.
Independent Broker
- Complete freedom to run your business your way
- Keep 100% of your commissions
- Grow at your own pace
- Higher risk – all expenses and marketing are on you
Brokerage Firm
- Leverage the company’s brand, systems and infrastructure
- Split commissions with the brokerage
- Mentorship and training opportunities
- Lower risk, but less control over your business
Weigh your risk tolerance, desire for independence, and access to capital to decide which path is best. Many new brokers start out at a brokerage to gain experience before going independent.
Step 4: Obtain Necessary Licenses and Insurance
Beyond your mortgage license, brokers need a few other credentials to operate legally:
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Business license: Register your business name and tax ID with state/local authorities.
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EIN: Obtain an Employer Identification Number from the IRS for tax purposes.
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Surety bond: Required in most states to protect consumers from any unethical business practices. Must carry minimum $25,000-$100,000 bond.
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E&O insurance: Errors & Omissions insurance protects you in the case of a lawsuit or claim against your services. Policy costs vary based on location and coverage level.
Step 5: Set Up Your Office, Website, and Marketing
To present a professional image to potential clients and partners, invest in building out the key components of your brokerage business:
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Office: Secure office space or plan to work remotely when starting out. You’ll need space for client meetings eventually.
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Website: A website that outlines your services, background, and mortgage resources helps build credibility.
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Business cards: Exchange contact info easily at networking events.
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Marketing materials: Professionally designed flyers, mailers, brochures and the like.
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CRM: A customer relationship management system to organize your pipeline. Popular options include Salesforce, HubSpot and Zoho.
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Email marketing platform: Build ongoing relationships with past clients and referrals through email newsletters and promotions. MailChimp, Constant Contact and AWeber are top choices.
Step 6: Build Your Lender Network
One of the most important assets for any mortgage broker is connections with numerous lenders offering diverse loan programs. Take time to nurture relationships with:
- National and regional banks
- Credit unions
- Mortgage companies
- Alternative portfolio lenders
Ask about their loan products, rates, qualifications, and how they work with brokers. Attend industry conferences or join professional associations like the National Association of Mortgage Brokers to meet more lenders.
Having access to a wide network ensures you can find the ideal loan fit for any borrower.
Step 7: Market Your Services to Attract Clients
With your business fully set up, it’s time to start attracting clients! Some effective tactics include:
- Networking at local real estate/finance association events
- Asking past clients for referrals
- Building relationships with realtors and other housing professionals
- Running ads – radio, TV, online, print
- Direct mail marketing campaigns
- Getting featured as an expert in local news articles or TV segments
- Writing mortgage/finance-focused content for your website or blog
- Participating in first-time homebuyer seminars and workshops
The most successful brokers continuously invest in their personal brands through content, public speaking engagements, social media, and other channels.
Step 8: Stay Up-To-Date on Industry Changes
Rules, regulations, loan options, and interest rates fluctuate often in the mortgage industry. Ongoing education is key to providing clients excellent service. Be sure to:
- Complete your yearly NMLS-required continuing education.
- Read industry news and blogs daily.
- Participate in training webinars from lenders and other partners.
- Join Facebook groups and forums for insight from fellow brokers.
- Subscribe to email newsletters like National Mortgage News.
- Listen to podcasts like Mortgage News Daily or Mortgaged Moment.
Making continuing education a habit will ensure you can guide clients to the best loan solutions as markets evolve.
Ready to Become a Mortgage Loan Broker?
If helping homebuyers find loans that fit their needs and budget sounds like your dream job, then take the next steps to get your mortgage license and start a rewarding career as a broker. Just follow this guide to tackle all the licensing, education, experience and marketing steps needed to launch and grow a thriving brokerage business. With hard work and dedication, you too can become a top-producing loan broker who people rely on to finance their biggest investment – their homes.
Take and pass the NMLS exam
When you have completed your pre-licensing courses and personal preparations, it’s time to take the NMLS exams. Also known as the SAFE exam, it will test you in five major categories:
- Federal law
- General knowledge of mortgage origination
- Ethics
- Loan origination activities
- Uniform state content
Most states have adopted the uniform state content (UST) to be included in the national test. These are 25 questions that gauge the applicants’ knowledge of state-specific facts and policies related to the SAFE Act.
Before taking the test, you need to create an online account in NMLS for enrollment. Once you’ve enrolled, you have 180 days to schedule an exam appointment.
Note that registration has a non-refundable fee of $110 as of June 2021. Additionally, the UST portion costs $69.
After scheduling your test sessions, you will receive an email confirmation about the time and location. If you need special accommodations due to certain disabilities, you need to indicate them on your enrollment form.
A test appointment has a strict time allocation of 225 minutes. You will have 190 minutes to answer a total of 120 questions, while 30-35 minutes will be allocated for a tutorial and an optional applicant survey.
The test should not be taken lightly as takers usually find it difficult. Only 58% of aspiring brokers who took it for the first time passed in 2020, according to the NMLS. The passing rate is slimmer for second-timers at 47%.
Find out why NMLS practice test is one of the best ways to prepare for the NMLS exam. Read our tips to help you pass the test on your first take.
If you fail the exam for the first or second time, you need to wait for 30 days before you can retake it. You will then have to wait 180 days if you fail on your third attempt, and the cycle repeats.
You have to achieve at least 75% on both the standard and UST parts of the exam. The results will be available within 72 hours of taking it.
Establish and register your mortgage brokerage as a legal business
The next step is to register your brokerage as a legal entity in your state. Below are the steps for registration, according to the US Small Business Administration (SBA).
- Choose your brokerage business name
- Pick your business location
- Choose a business structure
- Register your business to federal, state, and local agencies
- Get your federal and state tax ID numbers
- Apply for licenses and permits
The most common business structures chosen by new mortgage brokers are sole proprietorship, partnership, and a limited liability company.
Your choice influences the taxes that you pay, your day-to-day operations, and your legal protections or benefits.
Each structure has its pros and cons, so you should pick one that best suits your situation and business goals. You can eventually change its structure or dissolve your business to register a new one but these entail certain fees.
- Sole proprietorship – If you are working independently like most new brokers, you can register as the sole trader for your business. This is the easiest type to form and grants you complete control of your business.
This structure also means “your business assets and liabilities are not separate from your personal assets and liabilities,” says the SBA. “Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.”
However, being the sole trader means that you have unlimited liability. You may be held personally liable for any debt or obligation incurred by your business.
- Partnership – You can form a partnership if you are starting a simple brokerage firm with two or more people. It’s a good way to pool resources and expertise from a few people to create a stronger business model.
In this structure, one partner assumes unlimited liability while the rest have limited liability. The latter tends to have limited control over the company as documented in the partnership agreement.
- Limited liability company (LLC) – Alternatively, you can form an LLC to have increased protection from personal liability. This protects your personal assets like your home and savings accounts in case your mortgage business faces bankruptcy or lawsuits.
However, LLCs have limited lifespans in most states. You may be required to dissolve your LLC and register a new one in case a member leaves or joins your group.
After deciding your business structure, it’s finally time to register with federal agencies. Use the Internal Revenue Service (IRS) assistance tool to apply for an Employer Identification Number (EIN). This is also known as your state tax ID and federal tax ID numbers.
You need the EIN to create your business bank account and pay your taxes. In a nutshell, it’s like your personal security number but for your business.
How to Become a Mortgage Loan Officer in 2024! (Step by Step)
FAQ
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