Unlock Your Financial Freedom: The True Cost of Starting a Mortgage Brokerage

10 years ago when I was thrown into opening a mortgage brokerage, I didn’t have time to plan and understand the costs of opening a mortgage business. I didn’t have advisors to point me in the best direction when it came to being lean and mean as a startup. I was in “survival mode” and “Grow my business mode.”

And while I did accomplish growing my book of business, I spent a lot more money than I needed to, learning many lessons along the way. It’s why I now help other loan officers make the right decisions and become educated, when they are opening their own mortgage company.

Have you ever dreamt of being your own boss? Of building a business around your expertise and passion for helping people achieve homeownership? For established loan officers with a solid book of business, this dream can become a reality by starting your own mortgage brokerage.

In case you are not aware, the startup costs of a mortgage brokerage is relatively affordability compared to other industries and businesses. Making smart decisions can keep your initial investment low, allowing you to focus on growth and building a thriving business.

Here, we'll delve into the exciting opportunity of owning your own mortgage brokerage. We'll explore the steps involved in starting your business, along with the associated costs at each stage. We'll also highlight the significant benefits you can reap from becoming a business owner compared to working for a traditional mortgage lender. Finally, we'll acknowledge that startup costs can vary depending on your location, team size, and the choices you make along the way.

This guide equips you with the knowledge to confidently navigate the path to mortgage brokerage ownership. So, buckle up and get ready to unlock the potential of being your own boss!

Unveiling the Costs: Your Guide to Starting a Mortgage Brokerage

Many dream of the flexibility and financial rewards of owning their own business. The mortgage industry, with its consistent demand and potential for high earnings, attracts ambitious individuals. Intrigued by the idea of starting a mortgage brokerage? Understanding the startup costs involved is crucial for making informed decisions.

Demystifying Startup Costs: A Line-by-Line Breakdown

Professional Services - Your Trusted Advisors

Launching a successful mortgage brokerage requires a solid foundation. Partnering with qualified professionals like accountants, attorneys, licensing specialists, and compliance experts is paramount. You can seek each one out separately or you can look at a “Mortgage Brokerage in a Box” package, like the one we offer at Co/LAB Lending Franchise.

• Accountants: Navigate complex financial matters, ensuring accurate bookkeeping, tax filing, and financial planning.

• Attorneys: Guide you through legal processes, draft essential documents, and ensure compliance with regulations. $3,000 one time costs to get started.

• Licensing Specialists: Streamline the licensing process, ensuring you meet all requirements and avoid costly delays. $2,500/year for one state

• Compliance Experts: Ensure your business adheres to industry standards and regulations, mitigating potential risks. $3,000/year

Why it Matters: Skimping on professional guidance can lead to costly mistakes down the line. These experts anticipate potential pitfalls, saving you time, money, and legal headaches.

Professional Services $8,500 Total

Legal and Business Formation - Building Your Foundation

Establishing a legal business entity is essential. Limited Liability Companies (LLCs) offer a popular choice, providing liability protection and tax benefits. Be prepared for legal and filing fees associated with forming your business. While you can do some of these things online for minimal amounts out of pocket, where you will save the most is in the strategy and tax savings of how your business income flows to your personally.

LLC formation & secretary of state: $1,500

Tax strategy savings: Hundreds of thousands

I once had one of our Co/LAB Brokers tell me after our Formation meeting that the entire franchise cost was worth it for the value added at that one meeting! This made my heart sing! It also made me think about the $7,000 I had just spent correcting an LLC that we had initially filed incorrectly when we first got started.

Net Worth Requirements: Be aware that some states have net worth requirements for mortgage brokerage ownership. Understanding these requirements is crucial for planning and ensuring eligibility.

Net Worth Requirements: $15,000 -$100,000

Net Worth Requirements: $15,000 -$100,000

The biggest step in becoming a mortgage broker is applying for your Company License with your state authority. Each state has its own checklist with the items they have decided they want to see you complete. The items that we see most often on all checklists are the following:

Securing Your Surety Bond

Obtaining a surety bond is a mandatory step. This financial guarantee protects borrowers in case of fraud or misconduct. Additionally, meeting the Nationwide Mortgage Licensing System (NMLS) requirements is crucial for operating legally. These requirements may include passing an exam and registering your business.

Average Surety Bond per state: $1,000

Compliance Documents - The Cost of Peace of Mind

Compliance documents are essential for demonstrating your adherence to industry regulations. While costs may vary, these documents play a vital role in maintaining your license and mitigating legal risks. Consider partnering with a compliance company to simplify this process.

State Application Fees

Each state requires a check be written and sent with your application. Here is an example of five state’s fees:

Read our blog on Mortgage Broker Licensing Requirements

Average State Application Fee: $1,000

Total Company Application & Related Fees (without net worth required): $3,500

Technology Investments - Powering Your Business

Technology is the backbone of a successful mortgage brokerage. Essential business management systems include email, calendars, and secure document management solutions.

POS & LOS Systems

Just because you came from a company that used Encompass or Point, does not mean that they are the most productive or cost effective options available. The great news is that most systems are monthly subscriptions, so you will not be forking over thousands of dollars to setup a system for your business.

What you will spend a good amount of money or time on is when you want all of your technology to connect and work together. That takes hiring a team of experts or joining a group of mortgage brokers who have already figured it out for you. Over a 3 year period, we spent roughly $15,000 to figure out the formula we use today for new mortgage brokers wanting to enter clients once and have the information flow through to all their systems.

Beyond the Basics: Consider additional software needs like credit bureau connections, loan operating systems, and electronic signature tools. Invest in reliable hardware such as scanners, printers, and phone systems to ensure seamless operation.

POS & LOS System: $80/month

Build out of these systems: Your time or $1,500 to outsource

Building Your Team - Investing in Talent (Optional)

If you are starting your business with any employees out of the gates, your startup costs will increase immediately. You will need to pay employees, obtain insurances, benefits if you choose and employee taxes and management.

If your business can support this expense, it is worth the support and extra costs, but it also comes with more complexity.

Marketing and Branding - Building Your Presence

While marketing may be the least of your focus at the moment, creating a strong brand identity is essential for attracting clients. Costs to consider include domain registration, logo design, and website development. Ongoing marketing subscriptions for essential business tools like lead generation software and a CRM are the engines that will keep business walking through the door.

Company Brand & Logo Package: $1,000 - $5,000

Domain & Hosting: $250

Website Build Out: $2,500

Total Marketing Foundation: $5,000

Ongoing Operational Expenses - The Long-Term View

Beyond startup costs, be prepared for ongoing operational expenses. This is an area that if managed correctly will save you hundreds of thousands over the time you own your business.

Human Resources and Payroll - Investing in Your People

Employee compensation, benefits (health insurance, etc.), and payroll taxes are ongoing costs. Developing clear employee and compensation agreements is crucial for a healthy work environment. Worker's compensation insurance protects your business from liabilities related to workplace injuries.

Additional Considerations - The Hidden Costs

While not directly related to personnel, consider additional ongoing expenses such as:

• Office Space (if applicable): Rent, utilities, and maintenance costs associated with a physical office. If you are in a state that requires your company not be located at a residential location, you will need to lease space and put down a deposit and first months rent.

Lease Deposit & 1st Month Rent: $5,000

• Technology Maintenance: Maintenance fees and potential upgrades for your software and hardware are usually forgotten. You will need to decide on business systems such as Google or Microsoft to host email, calendar and digital document management. You may also need the help of a tech team to problem shoot and guide you through the systems your company uses.

I worked with a new mortgage broker this past year, who came from retail and noticed on their financial statements that their technology support & maintenance costs were over $2,000/month. I had never seen this line item so large for a 6 person team! We were able to cut that cost down to $300/month by connecting them with a solid technology group that managed and supported their loan officers for only $40/month per person.

• Compliance Foundation – Unlike 10 years ago, there are now a number of companies that will provide you with the Compliance Policies & Manuals you will need to run your business.

  Most of the Compliance Companies we found charged $1,500 - $3,000.

Mortgage Broker Compliance Manuals: $2,500

• Credit Report Bills – Once approved by your state regulators, you will be able to start building a pipeline. In order to do this, you will be qualifying home buyers, which includes pulling credit reports. If you choose to not pass this on to your customers, you will carry the first month or two.

  1-2 Months Credit Report Bills: $1,500

Summary of Costs Associated with Starting a Mortgage Brokerage:

Professional Services: $8,500 Total

Total Company Application & Related Fees (without net worth required): $3,500

Build out of these systems: Your time or $1,500 to outsource

Total Marketing Foundation: $5,000

Mortgage Broker Compliance Manuals: $2,500

1-2 Months Credit Report Bills: $1,500

Lease Deposit & 1st Month Rent: $5,000

Total out of pocket for starting a Mortgage Brokerage: $27,500

For State’s with Net Worth Requirements:

Net Worth Requirements: $15,000 -$100,000

While we did not cover every single expense that you can incur, this article should give you a good idea on the investment you will need to make to have the freedom and potential you have always dreamed of.

To meet with one of our Mortgage Broker Experts to discuss ways to save money on the items above, click the link below and schedule a time to meet.

Schedule A Call

And know that most business owners do not pay cash to start their dream business. They make an investment that pays them back tenfold in the years to come. There are options and loans that you can consider that will help you get on your feet and building a pipeline.

Planning for Success: Managing Your Startup Costs

A well-defined business plan is your roadmap to success. This plan should accurately estimate and manage your startup costs. Here are some strategies to consider:

• Minimize Initial Investment: Explore options like a virtual office setup or subleasing to reduce overhead costs.

• Seek Expert Guidance: Consider consulting with a mortgage broker coach or consultant who can provide tailored advice on navigating startup processes.

• Explore Franchise Opportunities: Franchises offer a structured approach with established brand recognition and support systems, potentially reducing startup costs and risks.

• Financial Advisors: Consulting with a financial advisor can help you develop a personalized plan for financing your startup and managing your cash flow effectively.

Unlocking Your Entrepreneurial Potential

Starting a mortgage brokerage requires careful planning and financial investment. By understanding the key cost categories and implementing smart strategies, you can minimize upfront costs and set your business up for long-term success. Remember, the potential rewards of financial independence and building a thriving business are significant.

Are you ready to embark on your journey as a mortgage brokerage owner? Download our free checklist of essential startup resources to kickstart your planning process! This checklist will provide valuable information on essential licenses, professional services, and technology solutions to consider.

And if this list freaked you out, take a breath and schedule a discovery meeting with our team of experts who can answer you questions and talk to you about alternatives. Co/LAB created a Mortgage Broker Franchise model for many reasons, and one of the top three is that when Independent mortgage brokers work together, they pool resources and cut down on expenses.

Frequently Asked Questions (FAQs):

Q1: How much does it cost to start a mortgage brokerage?

There is no one-size-fits-all answer, as startup costs can vary depending on factors like location, team size, and chosen technologies. This guide provides a breakdown of key expense categories to help you estimate your potential investment.

Q2: What are the licensing requirements for starting a mortgage brokerage?

Licensing requirements are determined by your state and the Nationwide Mortgage Licensing System (NMLS). Research your state's specific requirements to ensure compliance.

Q3: Do I need a business plan to start a mortgage brokerage?

A well-defined business plan is crucial for securing funding, managing your startup costs, and setting your business on a path to success.

Q4: What technology is essential for a mortgage brokerage?

Essential technologies include business management systems (email, calendar, document management), loan origination software, and a credit bureau connection. Hardware needs include scanners, printers, and phone systems.

Q5: What are the ongoing operational expenses of a mortgage brokerage?

Ongoing expenses include employee compensation and benefits, payroll taxes, technology maintenance, and potentially office rent and utilities.