How to Start a Mortgage Company

start a mortgage company

Starting a mortgage company can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful mortgage company.

Importantly, a critical step in starting a mortgage company is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.

14 Steps To Start a Mortgage Company:

  1. Choose the Name for Your Mortgage Company
  2. Develop Your Mortgage Company Business Plan
  3. Choose the Legal Structure for Your Mortgage Company
  4. Secure Startup Funding for Your Mortgage Company (If Needed)
  5. Secure a Location for Your Business
  6. Register Your Mortgage Company with the IRS
  7. Open a Business Bank Account
  8. Get a Business Credit Card
  9. Get the Required Business Licenses and Permits
  10. Get Business Insurance for Your Mortgage Company
  11. Buy or Lease the Right Mortgage Company Equipment
  12. Develop Your Mortgage Company Marketing Materials
  13. Purchase and Setup the Software Needed to Run Your Mortgage Company
  14. Open for Business

 

1. Choose the Name for Your Mortgage Company

The first step to starting a mortgage company is to choose your business’ name.  

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your mortgage company:

  1. Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
  2. Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
  3. Think about marketing. Come up with a name that reflects the desired brand and/or focus of your mortgage company.

 

2. Develop Your Mortgage Company Business Plan

One of the most important steps in starting a mortgage company is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

  1. Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your mortgage company.
  2. Company Overview – this section tells the reader about the history of your mortgage company and what type of mortgage company you operate. For example, are you a commercial bank, a thrift bank, or a credit union?
  3. Industry Analysis – here you will document key information about the mortgage industry. Conduct market research and document how big the industry is and what trends are affecting it.
  4. Customer Analysis – in this section, you will document who your ideal or target market are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
  5. Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
  6. Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
    • Product: Determine and document what products/services you will offer 
    • Prices: Document the prices of your products/services
    • Place: Where will your business be located and how will that location help you increase sales?
    • Promotions: What promotional methods will you use to attract customers to your mortgage company? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
  1. Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
  2. Management Team – this section details the background of your company’s management team.
  3. Financial Plan – finally, the financial plan answers questions including the following:
    • What startup costs will you incur?
    • How will your mortgage company make money?
    • What are your projected sales and expenses for the next five years?
    • Do you need to raise funding to launch your business?

 

3. Choose the Legal Structure for Your Mortgage Company

Next you need to choose a legal structure for your mortgage company and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole proprietorship

A sole proprietorship is a business entity in which the owner of the mortgage company and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a mortgage company together. The partners share in the profits and losses of the business. 

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a mortgage company include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax identification number and can have shareholders. The main advantage of a C Corporation for a mortgage company is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your mortgage company, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

 

4. Secure Startup Funding for Your Mortgage Company (If Needed)

In developing your mortgage company business plan, you might have determined that you need to raise funding to launch your own business. 

If so, the main sources of funding for a mortgage brokerage business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a mortgage company that they believe has high potential for growth.

 

5. Secure a Location for Your Business

Here are 5 steps to help you find a proper location for your mortgage company. 

  1. Decide what type of location you want for your mortgage company. This could be a storefront, office building, or even a home-based business.
  2. Research the areas that fit your needs and are affordable. Narrow down your search to a specific area or neighborhood.
  3. Get in touch with local real estate agents to see if any properties are available in your desired area.
  4. Once you find a property, take into account the necessary renovations that may need to be made before you can open your business.
  5. Finalize the lease or purchase agreement and get started on setting up your new mortgage company.

 

6. Register Your Mortgage Company with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.

 

7. Open a Business Bank Account

It is important to establish a bank account in your mortgage company’s name. This process is fairly simple and involves the following steps:

  1. Identify and contact the bank you want to use
  2. Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
  3. Complete the bank’s application form and provide all relevant information
  4. Meet with a banker to discuss your business needs and establish a business relationship with them
If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your business plan and financial model in hours.

8. Get a Business Credit Card

You should get a business credit card for your mortgage business to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.

 

9. Get the Required Business Licenses and Permits

There are a few licenses and permits you may need to start a mortgage company, depending on your location. For example, you may need a license to offer mortgage services, as well as a license to operate as a mortgage lender. You may also need to register with the state financial regulator. 

Contact your state’s banking or financial regulator for more information on what licenses and permits are required in your area.

 

10. Get Business Insurance for Your Mortgage Company

The insurance that you need to operate a mortgage company varies depending on the size and type of the company.

Some examples of business insurance policies you should consider for your mortgage company include:

  • General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
  • Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
  • Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
  • Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
  • Professional liability insurance: This protects your business against claims of professional negligence.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.

 

11. Buy or Lease the Right Mortgage Company Equipment

To run a mortgage broker business, you will need a computer with internet access, a printer, and a fax machine. You might also need office furniture.

 

12. Develop Your Mortgage Company Marketing Materials

Marketing materials will be required to attract and retain customers to your mortgage company.

The key marketing materials you will need are as follows:

  1. Logo: Spend some time developing a good logo for your own mortgage company. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
  2. Website: Likewise, a professional mortgage company website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
  3. Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media platforms will help customers and others find and interact with your mortgage company.

 

13. Purchase and Setup the Software Needed to Run Your Mortgage Company

The software you would need to run a mortgage company includes a customer relationship management (CRM) system, an accounting system, and a loan origination system.
 

14. Open for Business

You are now ready to open your mortgage company. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.

 

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How to Start a Mortgage Company FAQs

Yes, it can be hard to become an established mortgage company. There are many regulatory hurdles to jump through, and the competition is fierce. However, with a great business plan and some perseverance, it can be done.

There are a few things you can do to get started in the mortgage industry with no experience. You can start by researching the industry and learning about the different types of mortgages available, the mortgage process, and the role of a mortgage broker.

You can also attend industry and networking events to meet people in the space and learn from their experiences. Finally, you can look for internship or apprenticeship opportunities with a mortgage company to gain experience in the industry.

The most profitable type of mortgage company is one that specializes in refinancing. Mortgage companies that specialize in refinancing are profitable because they require less overhead than originating a new loan. This is because refinancing loans does not involve the same amount of risk and administrative work as issuing a new mortgage. In addition, many homeowners are interested in refinancing their mortgages in order to take advantage of lower interest rates.

It typically costs between $50,000 and $100,000 to start a mortgage company. This includes the cost of licensing, office space, and hiring employees. This also includes the cost of marketing the new business.

The ongoing expenses for a mortgage company are the costs that are associated with maintaining the company. This includes the cost of employee salaries, office supplies, and other miscellaneous expenses.

Mortgage brokers make money by charging interest on the loans they issue. They also earn fees for originating and servicing loans. Mortgage companies also may charge fees for providing banking services to their customers. Many of these fees are deductible in computing taxable income so they save the borrower and lender money.

There is no definitive answer to this question as it depends on a number of factors, including the size and location of the mortgage company, the interest rates offered, and the level of competition in the market. However, in general, mortgage companies can be profitable if they are able to offer competitive interest rates, keep overhead low, and maintain a large market share.

There are a number of reasons why mortgage companies fail. The following are some of the most common.

-Lack of liquidity: Mortgage companies can run into liquidity problems if they are unable to borrow money or access other forms of financing.

-Bad investments: Mortgage companies may invest in risky products that end up defaulting, causing them to lose money.

-Fraud: Some mortgage companies may participate in fraudulent activities, such as inflating the value of homes or providing loans to people who cannot afford them.

-Default on loans: If too many borrowers stop making payments on their mortgages, it can lead to a default by the mortgage company.

 

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