How Do Mortgage Brokers Make Money?

Interested in making a career in the brokerage industry? Look no further. This article dives deep into how mortgage brokers make money and how to turn into a mortgage broker.

The real estate business has been in transition for the past several years for some reason, however, it has created opportunities for experts keen on helping other people explore the purchase of a home. With solid monetary development in the housing and loaning market joined with a new interest in home proprietorship, certain professions in a real estate offer promising careers and business ownership paths. One of them is mortgage brokers who play a vital role in connecting lenders with home buyers.

If you are new to the mortgage broker\ge industry, you may have questions encompassing how do I become a successful mortgage broker. You might be interested in the licensing and education prerequisites, the expenses for starting up your own broker business, or how to get and keep colleagues and clients. In this article, we will discuss the intricate details of why and how to become a mortgage broker, covering every topic related to it in depth.

Who is a mortgage broker?

A mortgage broker acts as an agent between you and potential lenders. The broker’s responsibility is to take a shot at your benefit with a few banks to discover mortgage lenders with competitive interest rates that best fit your necessities. Mortgage brokers have a well-developed stable of lenders they work with, which can make your life simpler and less difficult. They are licensed and regulated financial professionals. Their work involves a lot of legal work. From collecting documents from you to pulling your credit history and verifying your income and employment — and using the information to apply for loans for you with several lenders in a short time frame is what they are responsible for.

Once you finalize a loan and a lender that fits you best, your mortgage broker will collaborate with the bank’s underwriting department, the closing agent (usually the title company), and your real estate agent to keep the transaction running smoothly through closing day.

How much do mortgage brokers earn?

In the United States, mortgage brokers earn an average of $92,262 per year, but this figure can change based on factors such as experience level and geographic location.

Mortgage brokers earn money differently than many other professionals do. Instead of earning a standard salary, most mortgage brokers receive a commission every time they complete a loan transaction, according to the following factors:

  • The commission that they earn from a mortgage is based on the terms of the loan. On average, mortgage brokers charge a commission of 2.25% for each loan, but per federal regulations, they cannot charge more than 3% of the loan amount.
  • Broker fees depend on the agreement they have with their client since brokers can work on behalf of either borrowers or lenders. Lenders generally pay a higher commission than borrowers do. When lenders pay mortgage brokers, they typically pay between 0.5% and 2.75% of the total amount of the loan. An origination fee that equals less than 3% of the loan amount is charged by the broker’s when borrowers pay the commission.
  • In most cases, commission rates are decided by the mortgage brokers based on the housing market in their area. For example, those who work in a more competitive market may need to charge lower commission rates, so they can leverage themselves as a better and more convenient choice than other mortgage brokers.

How to become a mortgage broker?

The answer to how to become a mortgage broker seems daunting. So, to make it easier for you we have broken down the process into steps.

Step 1: Dive Deep – Research the Role

Before jumping into becoming an independent mortgage broker, thoroughly understand the role and its responsibilities. There are two main paths: residential and commercial. Residential brokers work directly with home buyers, helping them secure funding from lenders for their mortgages. Commercial brokers, working on commission, assist businesses in obtaining mortgages for commercial properties.

In either role, you’ll actively help clients choose the best loans from various lenders and guide them through the loan application process. This involves obtaining your client’s credit report or financial statements and verifying their income and assets.

To excel, you’ll need a strong grasp of government regulations surrounding real estate financing. This knowledge helps your clients make informed decisions about property values and potential purchases. Regular travel is also part of the job, as you’ll meet with clients and lenders in person.

Step 2: Take a pre-licensure mortgage broker class

Irrespective of the state or states in which you operate your mortgage brokerage business, you must be licensed to become a mortgage broker. This requires you to meet specific education standards, including having your high school diploma at a minimum, or more advanced training through a college degree.

Above and beyond these education prerequisites, you also need to complete a pre-licensure program. This is a 20-hour class that offers education on federal and state laws pertaining to the mortgage broker business.

Step 3: Pass the National Mortgage License System (NMLS) test

Following the completion of your pre-licensure course, you will need to pass the National Mortgage License System (NMLS) exam to become a mortgage broker. The test, known as the SAFE Mortgage Loan Originator Test, questions your understanding of the course material, including broad mortgage practices as well as state-specific guidelines and regulations. You must pass your license exam, both the state and federal portions, with at least a 75% score. For more information about enrolling in NMLS, scheduling your exam, and testing locations go through the NMLS website.

Step 4: Register and establish your mortgage brokerage

After passing the exam and completing all the required coursework, you are ready to register your mortgage brokerage business. Registration requirements vary from state to state. They may consist of establishing a business name and location, securing an employer identification number or EIN, and creating a business structure like an LLC, an S or C corporation, or a partnership. You will then register your business with these details through your state’s licensing authority.

Select a physical location or an online mortgage brokerage.

After becoming a mortgage broker, you have the choice to select a physical location where you will provide services to clients or an online business. However, it’s essential to understand the guidelines of your state to help decide if an online brokerage business is viable.

Some states compel you to have a physical location to get licensed and operate legally. When selecting any physical location, consider the ease of accessibility for your customers, the price of renting space, and your available hours. If you have the option to work through an online brokerage, plan for a home office space that allows you to efficiently work.

Work out an initial budget.

There are several costs you’ll incur when becoming a mortgage broker. The required coursework and exam may cost up to $1,500 while establishing a business entity and registering it with the state may add on another $300 to $500. You will also need to contemplate your location, as office rent can add up to $1,000 or more per month.

Step 5: Get your mortgage

Broker license and Surety bond.

After passing your exam, registering your business, picking a location, and developing an initial budget, you are all set to apply for your mortgage broker license and secure your mortgage broker bond. Here are the steps you will need to follow to do so.

How to get a mortgage license.

Although there are federal laws regulating the mortgage broker industry, state laws will determine what you need in order to become a licensed mortgage broker and the bond amount you need. Check your state requirements with the help of our licensing guide or through the NMLS. In most cases, getting your mortgage broker license means passing your exam, paying your licensing fee, getting the appropriate bond, and submitting your application.

Get your mortgage broker bond.

A mortgage broker bond helps protect your clients if you don’t follow the rules of working as a broker in your state. It is not only a protection for your clients, but it also improves your credibility among potential customers. Most importantly, though, a mortgage broker bond is a requirement to be licensed.

Each state has different requirements for the amount of a mortgage broker bond you will need. The great news is that you only pay for a percentage of the total bond amount. The percentage you pay depends on your financial history and credit score, as well as your business details and previous claims history. Once you know the amount of the bond you need, you can submit an application online and in some cases, receive instant approval.

Submit your mortgage broker application.

After receiving your bond certificate, you will then sign it and send it along with your license application to the state. The mortgage broker application needs you to provide information about your business name and location, any web address you may use in the operation of your business, your registered agent of the business, and answers to specific disclosure statements per your state guidelines. You will also be exposed to a criminal background check.

New mortgage brokers may also need to give details about their business, including a business plan, an organizational chart, and a list of executives or managers who are part of the business structure.

Become licensed.

Once reviewed for accuracy and completeness, the state will then accept your application and send your license to you. At that point, you are ready to start work as a licensed mortgage broker.

Step 6: Build relationships with real estate agents and other partners

An extremely important part of becoming a successful mortgage broker after receiving your license is creating and developing relationships with business partners. For some mortgage brokers, relationships with real estate agents and lenders prove to be very helpful. These individuals or companies can deliver a steady stream of clients to your mortgage brokerage business, assisting you to maintain a steady flow of work. You may also consider building partnerships with financial advisors or tax accountants, as they often work with people who are in the market to buy or refinance a home.

Step 7: Get your first clients

Through your business partnerships, establish a system for taking on your first clients. Find out how you will work with them to understand their mortgage needs and the cost associated with it. Rely on your industry relationships for recommendations to new clients, but if that isn’t enough at the start, consider passive marketing strategies. You can make use of social media ads, radio or print ads to help increase your potential customers. Networking groups that include real estate agents and lenders may also prove advantageous when starting your mortgage broker business.

Step 8: Take more brokerage training

Finally, being a successful mortgage broker is a continuous process that requires training and education along the way. There are several courses you can take, either online or in-person, to enhance your knowledge of the industry, state and federal regulations, and trends impacting the market. You may also want to build relationships with other mortgage brokers to stay up to date with best practices and industry shifts, all meant to expand your business and value you add to your client’s mortgage search.

How much it costs to become a mortgage broker?

The setup costs to become a mortgage broker will sting. There are many different types of licenses, memberships, and insurances that you’ll be required to sign up for before you can even start writing business.

The cost of setting up includes:

  • Aggregator joining fee: $0 – $150,000 for a franchise.
  • Credit license (if operating under your own): Approximately $2,000 in regulator fees and up to $8,000 in consultant fees.
  • Police history check: $42
  • External Dispute Resolution (EDR) upfront fee: For the Australian Financial Complaints Authority (AFCA), the upfront fee for an ACL holder is $350.
  • Professional Indemnity Insurance (PI insurance): The Australian Securities and Investments Commission (ASIC) requires you to have a minimum of $2 million in aggregate and $1 million per claim of PI cover. Premiums vary from insurer to insurer so shop around.
  • Cert IV or Diploma: Depending on the registered training provider (RTO), a Certificate IV in Finance and Mortgage Broking (FNS40815) can cost $585 while a Diploma in Finance and Mortgage Broking Management (FNS50315) can $1090.
  • Industry association membership: Mortgage and Finance Association of Australia (MFAA) or Finance Brokers Association of Australia (FBAA) membership can cost anywhere between $400-500.

So, just to get started, you will roughly incur $150,000 to start your own mortgage broking business.

Ongoing broking costs to consider

  • Annual professional body membership fee: $400-500 depending on the association.
  • Monthly aggregator fee: As a general rule, $1,000 per month including up to $150 a month for leads. Check out the choosing an aggregator page to find out whether you’re getting what you’re paying for.
  • EDR ongoing fee: AFCA’s annual fee is $350.
  • Continuing training and professional development (CPD): Undertaking a PD course or attending a seminar can cost anywhere between $150-$250. These costs should be covered by your aggregator membership but it’s important to check the aggregator agreement before signing up.

The costs of running a business

If you are an independent mortgage broker running your own business, you will have to face business-related costs as well. These costs include:

  • Rent for your business premises:

    The market for commercial office space is fluctuating frequently and prices change fast. This is particularly true of metro locations where competition can see you paying as much as $2,000 a month for an 8-10 person office space.

  • Marketing and communications:

    These costs can vary but luckily the rise of social media platforms has made it cheaper. However, your ultimate goal is to increase the return on investment (ROI). With many advertising platforms out there, from Google ads to website traffic, without a dedicated strategy and ongoing management, you’re likely to generate minimal leads and most of them will be unqualified.

  • Telecommunications, IT, and systems:

    Cloud computing plays a big role in making it easier and cheaper to store files but there’s no getting away from hardware including internet costs, laptops, client relationship management (CRM) software, cybersecurity, and mobile phones. These costs will sum up to $40,000 per year.

  • Market data subscriptions:

    These subscriptions will help improve the way you pre-assess clients and simply provide that value-add to really set you apart from the competition. For example, you can provide customers with a free property report.

  • Travel costs and client entertaining:

    This cost is more applicable to mobile mortgage brokers but sometimes there’s no option to get rid of them.

  • Staff salaries:

    Since broking is a labor-intensive business, you will be required to cover the salaries of your support team.

  • Cash on standby:

    As a rule for a small business, you should have at least 50% of your expenses reserved as cash in the bank. You’ll have to add interest payments on top of that If this is in the form of a business loan.

How do I become a successful mortgage broker?

Achievement in any field requires the adoption of positive working propensities – being a mortgage broker requires the same. While there are numerous variables that different the best brokers from the rest, you can improve your odds of going along with them by adopting these four important attributes.

  1. Consistently solve clients’ problems

    For what reason do people come to mortgage brokers? Because they have an issue that should be tackled – they need a mortgage for their home or investment property. However, on the off chance that it was that straightforward, they might have gone directly to the bank themselves. They’ve rather come to you since they need expert advice. Be that expert, tackle their issues, and you’ll be well en route to being a top broker.

  2. Make clients your first priority

    The service industry is what the mortgage industry is where brokers are there to serve their clients. At the end of the day, those clients aren’t keen on your business – they’re keen on getting the best mortgage for their needs. Always keep in mind your client’s needs, and you’ll be acting in your own eventual benefits as a substitute. That is on the grounds that the business you get through the verbal exchange will more than cover any increases you might have made with momentary selfish thinking.

  3. Value time

    The clock ticks constantly – don’t burn through your own or your customer’s time. The quicker you can accomplish the objectives they set for you, the sooner they’ll have the option to move into their new house or begin renting their investment property, and the sooner you’ll have the option to get onto helping other clients.

  4. Never stop learning

    In the relentless twenty-first century world, there’s always something new to learn. In case you’re not pushing ahead in your knowledge, you’ll be moving in reverse since every other person will pass you by. The most important thing you can offer to your client is your expertise on everything regarding mortgages– that is the reason they come to you in the first place.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.