In Depth Guide: How to Open a Mortgage Brokerage

If you’ve made the decision to become a mortgage broker, you’ve come to the right place. Below is a high level breakdown of your steps in opening your own mortgage brokerage! While some of the steps can be done out of order, we’ve listed it in chronological order as much as possible to help you. We recommend reading through all the steps before you embark on your exciting journey.

Note: None of the below is financial or legal advice. Please consult the proper professional - attorney, accountant, CPA as you open your business.

Naming / Domain

While it may sound self explanatory, naming your business is arguably the first step in forming your business as you’ll need this for any other steps. If you’re not creative, you can always hire someone to help brainstorm options (if needed, you can search on Fivver - click here for a freelancer to help you brainstorm). When naming your company, you’ll want simultaneously make sure that a website domain for your business is available. You’ll also want to make sure it’s available in your state as an LLC (check your state’s corporate commission site) and make sure there are no trademarks already for that name. While you can always get a DBA (doing business as) later to advertise with a different name than your company name, it simplifies future paperwork if you can get away without a DBA. Once you decide on a name, it’s time to buy that domain! And also setup your email.

Business Address & File Your Business (aka become an official company!)

There are 3 common ways that you can start a company: a Corporation, Limited Liability Company (LLC), or Partnership. Most mortgage brokers opt to form an LLC as it matches most business owner’s goals. Corporations can be less flexible typically but may make sense for extremely large companies that want boards, etc. We recommend consulting a CPA (or tax preparer) and attorney if you’re unsure.

Just like the type of company, there are 3 common ways to actually create (or file) for your new business. First, most states offer an option to go directly to the corporate commissioner officer (or corporate divisions, etc - each state might have a slightly different name for this) where you can fill out paperwork. However, we typically recommend reaching out to a local attorney or an online company like FirstBase (if you use our link + PARTNER10 promo, you’ll get 10% off startup costs) to help you with this formation. It’s an easy win to have it automated. Note - if you’re looking to start ASAP, some states have expedited options (costs a little more, but quicker turntimes). You can check with the state’s corporate division office prior to submitting usually to get an idea of how long you’ll be waiting for your company to be “official.”

Multiple States?

If you plan to originate loans in multiple states, you’ll also want to register your company as a ‘foreign entity’ in those other states. You only need to form your company once but you’ll need to register in each state you plan to do business in. For brokers that already have established business in just one state, we typically recommend starting with your home state and adding other states later. A foreign entity (or foreign business) registration will require something called a ‘registered agent’ - this is basically who will be responsible to receive mailed/written notices on your company’s behalf. States always like to have an in state address that they can mail to. There are several companies online including FirstBase that offer these services for less than $100/yr which is what most brokers use.

Requesting / Filing an EIN from IRS (Employer Identification Number)

Once your company is formed in your state, you’ll want to apply for an EIN as soon as you can. The reason an EIN is important is that it’s required to open any bank account. If you applied for your company through an attorney or online, they may have requested this already for you. If not, click here for the IRS’s link to do so.

Open Business Bank Account

As soon as you have your EIN you’ll be able to open your business bank account. To help keep track of everything, we recommend DO NOT go to a big bank; other than them being potential competitors - most big banks do not allow mortgage brokers to bank with them. Some of the bigger banks have allowed brokers to open accounts but later get flagged for escrow activity and get shutdown with little to no notice which is even worse. We recommend you find a bank that allows you to have online banking, employee cards (if you plan to grow), mobile deposits, and can connect with outside software for easy accounting. If you’re looking for a tech forward bank that allows you to bank online, sending/receiving wires for free, and also generate virtual cards for employees (with spending limits), we highly recommend Mercury (if you click here, you’ll get a promo and cashback on initial spending in the account).

Accounting

While this isn’t required upfront by any means, we recommend setting this up early to avoid extra work down the road. Just like originating a loan, if you do it right the first time, it’s a much easier process later. For brokers that plan to do their own accounting, we recommend Quickbooks (use this link for 30% off first 12 months). You can set this up prior to all the above being completed so that way you can keep track of all of your startup costs. If you plan to have employees, originate in more than one state (since you need to track revenue per state), or just don’t have a knack for accounting, we HIGHLY suggest you hire an accountant / bookkeeper. This can be separate of a CPA (although some CPAs will do monthly bookkeeping). Lenders, your tax preparer, and State Auditors all require financials at different points from you so it’s important this part of your business is as clean as possible.

Filing for Mortgage Broker License in NMLS

Every state has slightly different requirements but we’ll try to cover most of the common ones here. You’ll want to proceed to the NMLS - click here and click on the state you’re looking to open your brokerage in and review the FULL checklist. While most people in the mortgage industry agree that the NMLS website is confusing to navigate; the NMLS staff is extremely helpful in navigating it! You can always reach them at 855-665-7123.

Setting up MU1

This is the first step to requesting a license on the NMLS. This does not notify any current company of the company creation.

Surety Bond

Majority of states out there require some kind of surety bond (this will be listed on their NMLS requirement). A surety bond is a bond that you pay for annually that is almost like an insurance policy. If the state ever decides to fine your company or award a consumer money because of illegal or other activities, they can tap into your bond (just like a bail bond works). You’ll typically pay $5-$12 in fees for every $1000 in bond coverage. Colorado requires error & omission insurance.

Business Plan

Many states require some kind of business plan. Don’t stress about this one! If required, most states only want to see a few sentences per category (aka marketing plan, target market - who are you going to go after, structure, etc).

Just a couple unique state licensing notes:

• Physical Office - Arizona, Hawaii, Missouri, and Nevada all have requirements where the qualifying individual (or responsible individual) must be an in-state resident or have a physical office. So, if you’re trying to get licensed out of state, you’ll need to figure out a way (this is also known as brick and mortar states)
• Test / Qualifying Individual - Arizona, Nevada, Utah, and Washington all require the lending manager/qualifying individual/designated broker to take a test in order to be responsible for the company. There are individuals that will represent your company for a fee and take this role on if you’re trying to get up to speed fast. NOTE Typically, if you list the qualifying individual, it’ll notify their current company where license is held.
• California - California has two different options for licenses: Either through the Department of Real Estate vs through the Department of Financial Protection and Innovation. If you proceed with the department of real estate application in California, then you’ll need to take the real estate test and as a broker this is 300+ hours. This is why many loan officers in California offer to do real estate and mortgages; although before you do so, please reach out to a compliance officer or attorney as there is much added liability. On the flip side, most newer of out state brokers go through the DFPI and get a CFL license.

Signing up with Wholesale Lenders (our favorite!)

While your state is approving your license, we recommend you start connecting with lenders. Most will give you logins until your license is approved, but many will at least let you start the paperwork so you’re ready to rock and roll once your license is approved!

While we have 200+ lenders on our site, we definitely don’t recommend signing up with all of them. We suggest having a minimum of 2-3 in each category that focus on a specific loan program to start out. For example, having a few great conventional lenders, government lenders, NonQM lenders, etc is a great way to have great options for your clients to start. Most lenders will require paperwork to be filled out, company financials (profit / loss and/or balance sheet), resume of the owner and any managers, and other related documents.

Compliance

Before you start originating loans, you’ll want to come up with the company’s compliance plans and procedures. It’s a nightmare to go backwards and gather paperwork that you should have been gathering the whole time! There are a many companies out there that specialize in this including Strategic Compliance Partners and Mortgage Manuals.

One item that you’ll have to plan for is Mortgage Call Reports (MCRs) - a quarterly report that you file in the NMLS system about your company’s origination activity (aka loans in process, closed, denied, etc). If you’ve setup your Loan Origination System (we’ll talk about in a moment), processing procedures, and accounting properly, MCRs can take a matter of minutes when they’re due. If you have to go backwards to gather all the data, it can be a nightmare!

Credit Reporting

It’d be pretty difficult to originate loans without the ability to run credit reports! Credit reporting companies will have to do an in office inspection. If you plan on having a home office, it’s best to double check with your state as well as the credit reporting company for any different requirements. Most credit vendors will want to see a secure/private internet network, filing cabinet (that is lockable with a key), printer, and shredder (in case you print any reports).

Loan Origination System (LOS)

You'll want to make a decision on an LOS as it’s a crucial part of running a mortgage company. As a mortgage broker, you typically don’t need such a robust system like Encompass. We recommend web based platforms like LendingPad and ARIVE. There are a couple lenders that let you use their system as an LOS but we warn against this as it makes it harder to keep track of items for compliance, etc.

Automated Underwriting System (AUS)

While most lenders allow you to run AUS on their systems, it’s best practice to get set up to run AUS in your LOS. Links below!

Fannie Mae’s Desktop Originator (DO which is the broker version of DU) - Click Here to Sign up for DU with their Technology Manager

Freddie Mac’s Loan Prospector (LP) - Here is LP's website to sign up

USDAs Guaranteed Underwriting System (GUS) - To create an account with USDA and GUS, click here

Other Few Other Business Related Things to Consider…

• Insurance - Below are just a few that brokers consider purchasing:
• Cybersecurity to help against outside hacks, etc (especially now that you store personal private data)
• Workman’s comp (for employees if they get hurt on the job) - not quite as common for office workers
• Errors and Omission - many brokers decide to skip E&O insurance because most policies have many exclusions. If you do plan on getting E&O insurance, please make sure you research the full policy.

• Logo - we highly recommend Fiverr to find freelancers for your new business. We recommend going with a freelancer that isn't cheap or the most expensive, there are some good value freelancers for $50-$100.
• Payroll - if you plan on having employees, you’ll want to research payroll providers early on
• Benefits - including 401k/IRA, health, dental, vision, etc. If you’re looking to offer this to yourself and/or employees, it might make sense to sign up for a PEO (a professional employment organization) that you can join to do payroll + benefits OR look for a local benefit broker
• CRM - for any successful business, you’ll want a great way to organize your database and market. Make sure to research what integrates with your LOS and features you use
• Setting Up Social Media Accounts - Facebook/Meta, Tik Tok, Instagram, Twitter, etc
• Government Loans- FHA / VA Sites - Click here to get WEBLGY's access and the VA Portal. Once you're approved with VA, you can sign up for FHA Connection using your VA Lender ID by clicking here to go to HUD's site.
• Email / Intranet Setup - Most companies will sign up for Google Workspace or Microsoft 365 for Business to run their emails

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