The Pros and Cons of Becoming a Mortgage Broker: Is It the Right Career for You?

Introduction

Becoming a mortgage broker is a career path filled with opportunities, but let’s be honest about there also being challenges. In comparison to working as a loan officer at a retail bank, becoming a mortgage broker offers distinct advantages that can significantly change your career, if you are willing to put in the work.

Whether you are contemplating transitioning from a loan officer role or starting fresh, understanding the pros and cons of becoming a mortgage broker is crucial. This article will explore why working as a mortgage broker may be more beneficial than being a loan officer at a retail bank and provide insights to help you make an informed decision.

Advantages of Becoming a Mortgage Broker

I have worked at a mortgage brokerage for 19 of my 20 year mortgage career, and although I might be biased, I do feel it is the best way to achieve creating a fulfilling and financially rewarding career. The reason that I have chosen to stay working in the broker channel is because it allowed me the freedom as a loan officer to find solutions for my agents and their customers.

Mortgage Brokers are More Competitive in the Market

As a mortgage broker, you have access to a wider range of products and lenders, which allows you to offer better rates to your clients. This competitive edge is one of the primary reasons many loan officers consider becoming mortgage brokers.

• Access to More Products: Mortgage brokers can work with multiple lenders, offering a variety of loan products tailored to different client needs. This flexibility enables brokers to find the best possible terms and rates for their clients. Some brokers consistently work with only a handful of lenders, where others will be signed up with 40 lenders! The choice is yours.

• Better Rates from Multiple Lenders: By comparing rates from various lenders, mortgage brokers can secure more competitive rates than those typically offered by a single retail bank. As a loan officer, the best way to compare rates is to use a tool such as Loan Sifter that compares lenders in the wholesale lending space.

What are the main advantages of becoming a mortgage broker owner compared to being a loan officer?

More Control Over Career Growth

Mortgage brokers have the autonomy to shape their career paths and business growth. This control includes building a team, hiring loan officers, and expanding into additional revenue streams such as commercial lending and ancillary businesses.

• Building a Team: As a mortgage broker owner, you can hire and mentor loan officers, creating a robust team to support your business growth. This is more difficult to do when you are working under a brokerage that has to take on these expenses for you. Therefore, you need to work for a broker model that gives you the ability to manage your commission revenue or go and open your own brokerage.

• Adding Other Revenue Streams: Diversifying your income by including commercial lending, niche lending products or other related services can significantly boost your business's profitability.

Bigger Impact in the Local Market

Mortgage brokers often have a significant impact on their local communities. By hiring locally and supporting other small businesses, brokers can contribute to the local economy in a bigger way than if they work at a lender’s company that is headquartered in another state.

Hiring Within the Local Community: When you hire employees from your local area, you are directly contributing to the economic well-being of your community.

Supporting Other Local Businesses: Purchasing office supplies, organizing local events, and participating in local business organizations further enhance your community impact.

Increased Income and Tax Savings

Becoming a mortgage broker opens the door to various tax-saving strategies exclusive to business owners.

• Advantages of Business Tax Strategies: Mortgage brokers can take advantage of tax deductions and benefits that are not available to employees. These include deductions for business expenses, home office use, and more.

Advantages for Loan Officers

If you are not ready to open your own mortgage brokerage, but instead plan on being a loan officer at a mortgage brokerage, there are advantages you will experience that you did not have working at a bank.

Some of the benefit from working at a mortgage brokerage compared to a retail bank are the following:

• Similar Advantages as Mortgage Broker Owners: Loan officers enjoy access to a variety of loan products and competitive rates. If a loan officer at a brokerage is in need of a particular product, they can go out and find a wholesale lender that has the option and bring it to their manager or owner.

• Potential for Career Growth: Loan officers at mortgage brokerages have the potential to grow their careers, with opportunities to eventually open their own brokerages when they have the closing volume to do so.

• Mentorship Opportunities: Working in a smaller, more dynamic environment often means closer mentorship from experienced broker owners.

Disadvantages of Becoming a Mortgage Broker

While the advantages are compelling, it's essential to consider the potential disadvantages of becoming a mortgage broker. However, these challenges can often be mitigated with the right strategies and support systems that can help you grow an even more impactful and authentic business as a mortgage broker.

Income Limitations

Mortgage brokers face caps on the earnings they can make per loan transaction, typically set at 2.75%. While this might seem restrictive, it doesn't mean you can't achieve significant income. With proper financial diligence and support, brokers can navigate these limitations effectively.

• Capped Earnings Per Loan Closing: Understanding and navigating these caps requires detailed knowledge of your financials and strategic planning.

Loan officer’s need to be prepared when switching companies, that there will be a period of time that their income will decline as they are building a new pipeline. This is not specific to becoming a mortgage broker, but to any transition from one company to another. If you decide to open your own brokerage, you will however incur upfront costs before you begin closing your first loans.

Licensing and Regulatory Challenges

Unlike large banks that are often licensed in all 50 states, mortgage brokers usually start with one state and expand gradually.

Starting with One State, Expanding Gradually: The process of obtaining licenses in multiple states can be time-consuming, complex and expensive. This is why as a broker, you typically will get licensed in the state’s where you are actively closing loans every year. For the state’s that don’t make sense to get licenses in, you can request to be sponsored at another mortgage brokerage.

Growth and Resource Limitations

Scaling a mortgage brokerage can be challenging without a large team and substantial resources.

• Challenges of Scaling Without a Large Team: To grow your business, consider joining a franchise model like Co/LAB, which offers shared resources and support. You no longer have to hire the marketing expert or human resources manager, the franchise company has these resources for you to lean on.

Ultimate Responsibility

As a business owner, the ultimate responsibility for success or failure rests on your shoulders. However, networking and joining supportive groups can mitigate these risks.

• Risks of Business Ownership: Strategies to mitigate risks include networking with other mortgage brokers and joining a supportive group that shares resources, such as Co/LAB Lending Franchise.

Disadvantages for Loan Officers

Loan officers also face certain challenges when working at mortgage brokerages.

Training Limitations

Training programs at mortgage brokerages may not be as robust as those at larger retail banks, requiring loan officers to be more self-reliant. Success in a mortgage brokerage often requires a proactive and resourceful attitude, from individuals who are self starters.

If you own the brokerage, before hiring other loan officers, who will be looking to you for growth and mentorship, make sure you have the time and resources to dedicate to your people.

Steeper Learning Curve

The complexity of learning multiple loan programs and technologies can be daunting for new loan officers. Instead of getting familiar with one bank’s system and process, mortgage brokers must learn 3-12 different lender’s systems and processes.

Steps to Becoming a Mortgage Broker

Licensing Requirements

Obtaining a mortgage broker license involves several steps, including meeting state-specific requirements.

• To learn more about the Detailed Steps for Obtaining a License: Each state has its own licensing process, which typically includes education, exams, and background checks.

Financial Planning

Proper financial planning is crucial when starting a mortgage brokerage. Many retail loan officers find themselves in a position where they are overspending and overhiring when they open their brokerage. It is why it is so important to work with a mentor like Co/LAB Franchise when you are opening your brokerage.

Some of the costs that we see brokers spending more than they should are:

• Estimating Startup Costs: Understanding the initial investment required and planning accordingly is essential. It can feel scary to begin spending money before you are making it, but this is the path of every business owner and founder.

• Securing Funding: Loan officers who see loan origination as a JOB, do not always look into getting financing when opening their business. This can make the first year challenging, because so many expenses are paid upfront, before you fund your first loans.

Building a Support Network

Finding mentors and joining professional organizations can provide invaluable support.

• Finding Mentors and Joining Professional Organizations: Networking with experienced professionals can offer guidance and resources. If you can’t find a mentor to help you, there are Facebook Groups and Coaching programs to lean on.

Business Growth Strategies

Effective marketing techniques and networking are vital for growing a mortgage brokerage.

Effective Marketing Techniques: Leveraging digital marketing, social media, and local advertising can help attract clients.

Networking and Client Acquisition: Building a robust network and acquiring clients through referrals and partnerships is essential.

In conclusion, while becoming a mortgage broker comes with its challenges, the advantages often outweigh the disadvantages. With proper planning, support, and strategic growth, transitioning from a loan officer to a mortgage broker can lead to a rewarding and lucrative career.

If you are considering this career path, we encourage you to seek mentorship and create a custom budget to ensure your success. For more resources and expert advice, meet with our team of mortgage broker experts and learn more about the opportunities available.

Schedule some time to meet with Co/LAB’s mortgage broker veterans, who would be happy to answer your questions that we didn’t answer in this article.

Frequently Asked Questions about becoming a Mortgage Broker

1. What are the main advantages of becoming a mortgage broker compared to being a loan officer?

Answer: Becoming a mortgage broker offers several advantages over being a loan officer at a retail bank. Mortgage brokers have access to a broader range of loan products and lenders, which allows them to offer better rates and more customized solutions to clients. Additionally, mortgage brokers have more control over their career growth, including the ability to build a team and diversify into other revenue streams like commercial lending. They also have the potential to make a significant impact in their local community by hiring locally and supporting other small businesses. Finally, mortgage brokers can take advantage of various tax strategies that are not available to employees, enhancing their overall income potential.

2. What are the licensing requirements to become a mortgage broker?

Answer: The licensing requirements to become a mortgage broker vary by state but generally include completing pre-licensing education, passing a licensing exam, and submitting to a background check. For example, in Pennsylvania, aspiring mortgage brokers must complete 20 hours of pre-licensing education, pass the National Mortgage Licensing System (NMLS) exam, and submit fingerprints for a background check. Additionally, they must meet any state-specific requirements, such as maintaining a certain net worth or obtaining a surety bond. It's essential to check the specific requirements for the state where you plan to operate.

3. How does the income potential of a mortgage broker compare to a loan officer?

Answer: The income potential of a mortgage broker can be significantly higher than that of a loan officer, although it comes with certain limitations. Mortgage brokers earn income through commissions on the loans they close, and while there is a cap on the commission rate (typically around 2.75% per loan), brokers can increase their overall income by closing a higher volume of loans and offering a wider range of products. Additionally, mortgage brokers can benefit from various business tax deductions that can enhance their net income. In contrast, loan officers typically earn a salary plus commission, but their product offerings and earning potential are often limited by the policies of the retail bank they work for.

4. What are some effective tax strategies for mortgage broker owners?

Answer: Mortgage broker owners can utilize several effective tax strategies to maximize their income. These strategies include deducting business expenses such as office rent, utilities, supplies, and marketing costs. They can also claim deductions for home office use if they operate part of their business from home. Additionally, brokers can take advantage of vehicle and travel expense deductions for business-related travel. Another effective strategy is setting up a retirement plan, such as a SEP IRA or a solo 401(k), which allows for significant tax-deferred savings. Consulting with a tax professional who understands the mortgage industry can help brokers implement these strategies effectively.

5. What are the main challenges of becoming a mortgage broker, and how can they be mitigated?

Answer: The main challenges of becoming a mortgage broker include income limitations, licensing and regulatory hurdles, and the complexities of growing a business without a large team. Mortgage brokers face caps on the commission they can earn per loan, which requires careful financial management and strategic planning to maximize income. Licensing and regulatory requirements vary by state and can be time-consuming to navigate. To mitigate these challenges, brokers can join franchise models like Co/LAB, which offer shared resources and support. Additionally, networking with other mortgage brokers and joining professional organizations can provide valuable mentorship and guidance to help new brokers succeed.