So, you’re thinking of how to become a broker.
We understand the appeal of venturing out on your own and opening your brokerage.
According to Indeed, the average annual salary for a mortgage broker in the United States is $97,838. Commissions on closed loans are the primary source of income for brokers.
Commissions range from one to three percent of the loan’s total value, and can be paid for by either the borrower or the lender (though the latter is prohibited). One only fills out some paperwork to enter the field of brokering.
The page also includes a detailed how-to section. However, like any other profession, being a broker would be difficult.
In this article, we will examine this very topic. This article is your ultimate guide on how to become a broker in 2024.
How does it work, and what are its pros and cons?
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Table of contents
What’s A Broker?
Brokers mediate between homebuyers and lenders by negotiating loan terms on their customers’ behalf.
How Do You Get A Broker License?
Getting a broker’s license requires several passing grades and experiences.
There are several steps involved in becoming a licensed broker, including taking and passing a 20-hour course, being bonded, registering your brokerage, and applying to your state of domicile (requirements vary by state).
Yes, it is a long list of requirements to check before acquiring your license. But the freedom of being your boss and the commissions you’ll earn on assignments are worthwhile.
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What Are The Pros And Cons Of Becoming A Broker?
We briefly summarized here the pros and cons of entering the brokering industry.
Pros:
- No degree needed
- Flexible schedule + control of your tasks
- Opportunity to earn a substantial income
Cons:
- It needs lots of discipline, especially in juggling multiple clients at once.
- Brokers must be analytical (bonus if they’ve got sales skills!)
- Living from commission to commission
Later in this article, we’ll discuss the benefits and drawbacks of entering the brokerage industry.
However, it is all the essential background information. Now let’s talk more about how to become a broker!
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What Do Brokers Do?
Brokers, as we’ve established, are qualified individuals allowed to represent both the interests of the borrower and the lender.
To help their clients gain the home of their dreams, they carefully examine their financial records and pair them with the most suitable lenders.
That’s all there is to it!
It is up to the customer’s discretion if they choose to work with a broker. They can bypass any middlemen and negotiate directly with the lender.
However, customers value brokers for their knowledge and experience in finding the best mortgage for their unique situations. And this is especially true when high-value customers need more time to handle their deals.
Real estate agents may assist with everything from completing paperwork to negotiating the best possible prices. They can pick from a wide variety of financing programs.
In contrast to dealing with specialized banks, clients’ options depend on their services. In contrast to getting a loan from a bank, this video concisely outlines the services provided by a mortgage broker.
But mortgage brokers have developed a reputation in recent years, and it’s not always a good one. Likely, you are already aware of the issue at hand.
Too many brokers have been selfishly looking out for themselves and their bottom lines. Becoming a mortgage broker in such a situation might be challenging.
Some brokers are dishonest, and consumers hear horror stories like this and lose faith in the industry. It’s a nightmare for customers just as much as for brokers.
A trustworthy broker will aid borrowers in finding the most suitable mortgage plan while earning an honest living.
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A Step-By-Step on How to Become a Broker
With that, let’s talk step-by-step about how to become a broker!
It would be best to become certified as a mortgage broker before representing either a borrower or a lender in a financial transaction. That requires you to be in class and do the work.
Do we hear a yes? One can complete the requirements to become a licensed mortgage broker in a short amount of time.
However, some hard work is going to be necessary. You’ll go through the steps:
#1: Find out your state’s requirements
Getting a license from the National Mortgage Licensing System is the first step toward a career as a broker (NMLS).
It’s essential to spend your time researching the specific licensing requirements in your state since they may vary depending on the type of mortgage broker license you need.
Check your state requirements through the NMLS licensing guide here.
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#2: Get your high school diploma
While a bachelor’s degree is often the minimum educational requirement for many mortgage brokers, several states demand a high school diploma or equivalent.
Getting into the mortgage broker business does not need a four-year degree.
However, a high school diploma is necessary for all applicants. If neither of these applies to you, you’ll need to show verification of a GED score of at least 145.
Although a four-year degree isn’t necessary, you’ll learn the ropes of the industry with some exposure to finance, economics, accounting, business administration, etc. Remember that a broker’s responsibilities include more than just making introductions between borrowers and lenders; they also have to manage their own company.
If you’re thinking about a future in brokerage from a young age, it’s essential to have a solid education.
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#3 Finish pre-licensing training
You’ll need to put in the time and effort for a 20-hour training course before getting your mortgage broker’s license and making money.
You may find many NMLS-approved real estate schools if you need help.
The vast majority of these resources are available online, making it convenient to study whenever and wherever suits you best.
We suggest the following three institutions for pre-licensing in the mortgage industry:
- The CE Shop – This is among the top online institutions for pre-licensing education, which most states require.
- OnCourse Learning – they can deliver learning materials in either text-based or interactive ways.
- Allied Schools – Provides courses that meet state requirements and test preparation.
You can also look through NMLS’ list of approved course providers if you’re looking for a specific school.
These are some of the typical topics covered in the 20-hour course:
- Federal law (3 hours)
- Ethics on fraud, consumer protection, and fair lending issues (3 hours)
- Non-traditional mortgage lending (2 hours)
- Electives (12 hours)
However, as we’ve already mentioned, state requirements might vary. Thus these classes may occasionally include extra state-specific legislation.
#4 Take and pass the NMLS exam
After finishing the 20 hours of pre-licensing study needed by the NMLS, you are eligible to take the exam, also known as the SAFE test.
Be careful to take advantage of this step!
There were a lot of first-time exam failures among would-be mortgage brokers. In reality, just 55% of test takers are successful on their first try, and only 43% succeed on their second.
For this reason, investing in a SAFE MLO Exam mortgage exam preparation package is highly recommended. It will thoroughly prepare you for the SAFE MLO examination since it provides you with practice questions at or above the level of complexity of the proper examination.
You’ll have 190 minutes to answer 125 multiple-choice questions for the test. You need at least 75% on this to pass.
They will include these topics in the exam:
- Federal mortgage-related laws (23%)
- General mortgage knowledge (23%)
- Mortgage loan origination activities (25%)
- Ethics (16%)
- Uniform State Content (13%)
Once you feel you’re ready for battle (a.k.a. take that test), create to register for the exam and pay for fees. You can schedule the exam up to 180 days in advance.
After that, you’ll be able to check the status of your exam results at least 72 hours after you take it. Imagine you bomb the test. You have 30 days to prepare for another try.
If you still need to be successful after that, you’ll have to wait another 180 days before trying again. The percentage of students who pass may seem low, but if you study hard and use all the resources, you will succeed with flying colors.
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#5 Get your mortgage broker bond
This stipulation is necessary: When seeking full licensing as a mortgage broker, one must first get a mortgage broker bond. The bond provides additional consumer protection if a mortgage broker violates state rules and regulations.
If you breach the law, your customers may seek restitution for any losses they incur because of your transgression. Depending on the state, bond amounts can range from $1,000 to $100,000.
To qualify for a mortgage broker bond, you must maintain a high personal credit score. Your bond premiums, or the yearly amount you must pay, would also depend heavily on this.
The bond premium might be anything from 0.75% to 3% of the face value of the bond.
#6 Register your mortgage brokerage
Brokers might choose to work alone or join an existing brokerage.
If You need to have your mortgage broker firm licensed, if you go that way, then prerequisites for registration vary from state to state, just like the prerequisites for obtaining a license.
There are exceptions, but in most cases, you’ll need to provide information like your business’s name and address, organizational structure, and an Employer Identification Number (EIN) to file taxes.
There are three possible organizational structures for a brokerage, and choosing the best fit for your firm is essential.
Sole proprietorship
This is the most straightforward kind of organization to set up, allowing you to complete the management of your company. A sole proprietorship’s assets and liabilities are the same as the owner’s finances. You would be responsible for the company’s debts and obligations.
Partnership
Have at least two other individuals backing you up? Having that choice opens the door to potential collaboration. Suitable for partners who want to see how things go before committing to a full-fledged company structure.
Limited liability company (LLC)
Personal assets are safe from business debts and lawsuits by forming an LLC. An LLC can protect your assets from being seized during corporate bankruptcy. Although LLCs have fewer restrictions, many jurisdictions still have some. Most states require you to dissolve the LLC and form a new one if a member enters or quits the business.
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#7 Submit your mortgage broker application
Your application will be complete once you have finished the required pre-licensing coursework, passed the exam, registered your brokerage, and obtained your mortgage broker bond certificate.
Additional company information is required to process your application. You will probably provide information like your company’s name, address, website, registered agents, etc.
Additionally, you must submit a criminal record check. Visit the NMLS website for a complete guide and copies of the application forms you must submit.
After filling out and signing all the documents, all that’s left to do is submit them to the state and wait for a response. Your license will be mailed to you when the state has reviewed and approved your application.
Which means. You’ve made it: You’ve passed the mortgage broker exam and received your license.
#8 Get more brokerage training
Getting a driver’s license does not mean the learning process is complete. Your yearly renewal with the NMLS as a mortgage broker is mandatory.
As a mortgage broker, you must complete 8 hours of CE each year to maintain your NMLS license (CE). The training will bring you up to speed on the most recent guidelines and standards in your field.
The best option is to take your continuing education classes from the same accredited online institution where you completed your initial licensure requirements. However, if you’re interested in learning more about your possibilities, here are some suggestions for continuing education as a mortgage broker:
- Online Ed – Quick, straightforward, text-based lessons
- Ice Mortgage Technology – Offers course updates via a 12-month subscription
- Mortgage Educators and Compliance – Lessons in multiple formats (in-person and online classes)
Advantages: Why Do People Need Brokers?
We will discuss the benefits and drawbacks of entering the mortgage brokering industry.
Let’s discuss the realities of the industry from the perspective of both customers and brokers before you commit to this career path.
#1. Mortgage brokers save people energy
It’s easy because of you. From the point of view of the client, that’s the ideal situation.
They may inform you of everything that needs to be known, then relax while you go out and find a lender on their behalf. Since mortgage brokers are to have many contacts, this should be quick if you’re an experienced broker.
A mortgage broker’s services may also save clients from bankruptcy because of onerous repayment requirements. If you have a good mortgage broker, they can save you from predatory lenders.
A broker can help individuals save time and effort, and their profession also allows for a healthy work-life balance. Mortgage brokers are in the enviable position of being able to set their hours and do anything they want between client meetings.
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#2. Mortgage brokers already have the connections
A broker’s employment requires them to network; as a result, they have many contacts worldwide. If they ever need to help a borrower find a lender, they can use these contacts to their advantage.
Not all brokers can get funding from every lender. If a borrower went it alone and already had a preferred lender in mind, they might only work with them if they go via a broker.
#3. Mortgage brokers know what they’re doing
The ability to attract and keep clients depends on your expertise. Therefore, brokers need to stay on the cutting edge.
It’s more than simply a matter of links. Self-reliant borrowers may find that it is more complex than they expected to track out a willing lender.
The total amount they will have to spend on fees may surprise them. However, using a broker may reduce or even eliminate these costs.
The borrower can save several thousand dollars if the mortgage broker is competent. One other financial perk is the salary a mortgage broker may expect to get.
On average, mortgage brokers earn a commission of 3% on each loan closed. Now, say you concluded a $500,000 sale and earned a commission of $150,000.
Is everything looking fine?
Disadvantages: What Should People Know About Brokers?
After discussing the benefits of working with a mortgage broker, we may move on to the drawbacks.
#1. There are fees to be paid
Unfortunately, the cost of using a broker extends beyond their income.
Brokers, lenders, the application process, the loan origination, the appraisal, etc., all come with costs that customers must pay. Remember what we said about how a good broker may have these reduced or even thrown in for free?
If not, these one-off costs might add up to several hundred or even a thousand dollars.
#2. Mortgage brokers might not have a client’s best interests at heart
After all the pleasantries, business is business.
Brokers earn money in two ways: from the lenders they bring in and the commissions they charge their customers. Most often, people go for mortgages that will increase their pay.
They are just concerned with making as much money as possible, even if it means short-changing the customer.
#3. Inexperienced brokers will cost you a lot
Clients seek after brokers because of their knowledge and network. However, new brokers entering the market may need more contacts to give their customers the edge they want.
Brokers like that will only assist their clients in saving money and will wind up costing them more than they would have held on their own. Brokers are to be brilliant analysts and have sales abilities, despite their lack of expertise in such areas.
This is not a job for you if you are terrible with statistics and hate talking to people. The good news is that you can learn the skills to succeed in the position.
So, there are preparatory classes lasting 20 hours!
FAQs – How to Be a Mortgage Broker
Yes, each state has its requirements for mortgage broker licensing.
The norms vary from state to state.
Brokers-to-be in such states might need to take additional training beyond the 20 hours required by the NMLS.
Aside from your home state, you are free to seek licenses in any other state where you need to operate.
Check your state requirements through the NMLS licensing guide here.
Now comes the exciting conclusion to the story.
Indeed reports that the average annual salary for a mortgage broker in the United States is $97,838.
The median annual compensation of a broker in Los Angeles, California, is $43,077, while in Nashville, Tennessee, it is close to $156,744.
Mortgage brokers focus on borrowers and lenders, while real estate agents represent both parties in a property transaction.
They assist customers in acquiring properties, yet they both use a unique approach.
Agents in the real estate industry need to constantly be on the lookout for new clients, hold open houses, persuade potential customers, and negotiate deals between sellers and buyers.
It involves more direct contact with customers.
In contrast, mortgage agents have a little more flexibility in their schedules.
They need to find competitive loan deals or lock in favorable interest rates.
In contrast to real estate agents, who deal with clients one-on-one, mortgage brokers are continuously networking with lenders.
Conclusion
And that’s everything you need to know about how to be a broker this 2024.
The job of a mortgage broker is simple. A university degree is not even required.
However, you would need to put in a lot of work, especially to compile the state criteria. Once you’re out there making connections between buyers and lenders and seeing people find the perfect mortgage for them, the work is rewarding.
So, why are you stalling? Yes, begin your career as a mortgage broker right now! We’re interested in hearing from any brokers out there about their experiences.
References
- https://www.indeed.com/ – How to become a real estate broker
- https://www.investopedia.com/ – Stockbroker
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